HARPER: HAS WARREN BROKEN RANKS TO PUSH GLASS STEAGALL?

Senator Elizabeth Warren, the Massachusetts Democrat super-star who engaged in a noisy name-calling war with then-Presidential candidate Donald Trump on behalf of Hillary Clinton, is now sending public signals that she is willing to work with the President on a signature legislative initiative that they both publicly support:  The reinstating of the 1933 Glass Steagall Act to break up the too-big-to-fail Wall Street banks.  During the 2016 presidential campaign, both the Republican and Democratic Party platforms called for restoring Glass Steagall, and there are now bipartisan bills in both Houses of Congress to reinstate it.  Warren, along with John McCain, Maria Cantwell and Angus King, initiated the Senate bill, and Marcy Kaptur and Walter Jones reintroduced the bill into the House (where it now has 47 co-sponsors).  During his own presidential campaign, Donald Trump called for the reinstatement of Glass Steagall during a high-profile campaign appearance in Charlotte, North Carolina just weeks before the election.  Hillary Clinton opposed the restoring of Glass Steagall. In 1999, then-President Bill Clinton had signed legislation repealing Glass Steagall.  

After the 2008 financial blowout, two Congressionally-mandated commissions concluded that the repeal of Glass Steagall had contributed to the financial bubble that burst beginning in 2007, leading to the biggest Wall Street bailout in history.

In recent days, newspaper headlines have been touting the possibility of a cross-party alliance between Warren and Trump to restore Glass Steagall.  On May 10, Senator Warren gave an exclusive interview to Bloomberg News, in which she openly stated her willingness to work with the President on legislation to break up the banks.  "We're certainly reaching out to the administration.  So far, we've had some good conversations and that's what I want to see happen.  I'm ready.  Because, you know, this is one of those basic things--folks on Wall Street may resist it.  But most of the American people get it."

Two days later, the Los Angeles Times published an extensive article under the headline "Something Trump and Elizabeth Warren agree on: Bringing back Glass-Steagall to break up big banks."  The article cited a broad range of politicians boosting Glass Steagall, from Warren and McCain to Trump economic adviser Gary Cohn, to Congressional fire-brands Bernie Sanders and Barbara Lee. 

There are big hurdles to overcome before Glass Steagall becomes law again.  Jeb Hensarling, the Chairman of the House Financial Services Committee, has his own legislation to create further protections against a repeat of 2008 or worse, but his bill does not explicitly move to break up the TBTF banks, which have become 40 percent bigger, as the result of Federal Reserve and Treasury-engineered mergers at the height of the 2008 blowout.

But the idea that Elizabeth "Pocahontas" Warren and Donald Trump could work together on such a big undertaking is in and of itself significant.  During the first 100 days of the Trump presidency, the level of partisanship has gone off the charts, creating the appearance that nothing of a bipartisan character stands a chance of moving forward.  Glass Steagall could break the mold and hold open the possibility of other areas of bipartisan cooperation, at a moment when there are an abundance of issues that ought to be of common concern.  

The big question is:  Will Trump act on the basis of his recently repeated sentiments in favor of Glass Steagall?  If the President of the United States presses the Majority Leaders in Congress to bring the bill to a debate and vote, it stands a far better chance of happening.  That, ultimately, is the test of whether the recent back and forth between Senator Warren and President Trump will have any real impact.  

 

Comments

[JohnH]

Trump's support of restoration of Glass-Steagall provides us with another motive for the anti-Trump hysteria and the promotion of the Trump-Putin narrative. Wall Street and their supporters, including the Clintons, would be appalled at any attempt to reign in Wall Street.

[sid_finster]

I am all for it. Incidentally, the fact that a high profile Democrat with national aspirations is willing to work with Trump on a controversial issue shows that she (and the rest of Team D) know that russiagate is bunk.

Otherwise, why cooperate with Trump on anything if he is really working for Russia?

[MRW]

Maybe it will neutralize Rachel Mad Cow Maddow.

[Sam Peralta]

Harper

The restoration of Glass-Steagall will be a very good first step, by protecting depositors in commercial banks from speculation and the fidelity of the payment system. But it should be noted that it would not have prevented the mortgage credit bubble and the subsequent bursting of that bubble. As Nassim Taleb calls it, "skin-in-the-game" must also be restored, with losses for failure in investment banking and financial asset management, apportioned among management, shareholders and creditors. Recall that Wall St was primarily partnerships with partners' capital in first loss position, not too long ago. And the biggest reform that is required, is getting the Fed out of the business of levitating financial assets, by conjuring up new liabilities on its balance sheet out of thin air. What is the meaning of "price" of a security, when the Swiss National Bank can conjure up new liabilities, trade them for US dollars on forex markets, and purchase $80 billion of US stocks?

[Bill H]

The rhetoric conflates two different problems; the use of depositors' money in speculative investment, and banks that have become so large that failure of even one of them threatens damage to the economy. Reinstatement of Glass-Stegall addresses the first, but has nothing directly to do with the second. The claim that the reinstatement of Glass-Stegall is to break up the TBTF banks, or that it will do so, is spurious, since Glass-Stegall merely prevents deposit banks from using depositors' funds for the purpose of speculative investment.

The author of the cited piece gives that away then he refers to, "TBTF banks, which have become 40 percent bigger, as the result of Federal Reserve and Treasury-engineered mergers at the height of the 2008 blowout." He did not, you may note, say that they became bigger as a result of the repeal of Glass-Stegall, but due to mergers, and the reinstatement of Glass-Stegall is not going to reverse those mergers. It is merely going to put a stop to the use of depositor funds for the purpose of risky investment.

[Harper]

JohnH is absolutely right. And you have to ask yourself: Among the top ranks of the FBI and the CIA, how many people view themselves as defending Wall Street as the anchor of "the American way of life?"

[Stumpy]

Trump and Warren are to a minute but imo real extent cut of the same cloth, both radical attention-seekers with contrarian streak.

Warrens character arc in this sordid play marked the transition from act 2 to act 3 in the campaigns, the day she met with HRC with rumors about who would be the VP select. Then the endorsement. How they turned on her, the Berniecrats who saw the Sanders-Warren ticket as the dream, only to have it dashed by Warren's betrayal. I think Warren caught more flak than Trump himself at that point.

Having lost her "base" and being ceremoniously plucked in Congress [ https://www.nytimes.com/2017/02/07/us/politics/republican-senators-vote-to-formally-silence-elizabeth-warren.html?_r=0 ], I can see how she would adopt Glass-Steagal as the black swan platform to get her Jack Russell groove back. Trump will follow his nose wherever it leads.

[Lefty]

The backstory is that the Goldman-Sachs mob running finance in the Trump administration sees restoration of Glass-Steagall and dismantling TBTF banks as giving them a competitive advantage. That's why we did not see it happening in the Citi mafia run Obama years.

Warren and Goldman, politics as ever makes strange bedfellows. If the fallout, in addition to Goldman-Sachs prosperity, is another 50 years of financial market stability like we got from Glass-Steagall it would be a beneficial relationship.

[JohnH]

How many people among the top ranks of the FBI ever prosecuted a Wall Street banker for mortgage fraud?

In fact, the investigation of mortgage fraud was a low priority for the FBI under Holder and Obama.
http://turcopolier.typepad.com/sic_semper_tyrannis/2017/05/harper-has-warren-broken-ranks-to-push-glass-steagall.html#tpe-action-resize-380

It could be argued with some justification that Wall Street is more of a threat to the US economy and to US democracy than Putin ever was.

[Jack]

"What is the meaning of "price" of a security, when the Swiss National Bank can conjure up new liabilities, trade them for US dollars on forex markets, and purchase $80 billion of US stocks?

In the good ol'days they would have called it communism, marxist-lenninism and/or nationalization when government, in this case through it's central bank, acquires ownership interest in businesses. In more normal times when people used plain language and were not so easily swayed by the sophistry of elites, when a foreign government directly bought ownership in domestic companies there would have been some scrutiny. But in this topsy-turvy world of mass delusion that we live in, the ostensible "capitalists" are cheering as they sell bonds and equity to central banks. The BoJ is now a Top 10 owner of the companies in the Nikkei index and the ECB is loaded to the gills with corporate bonds and our Fed owns not only the dregs from the Bear Stearns fiasco but hundreds of billion dollars of mortgage backed securities. I wonder what the pundits will say, if on the current trajectory, governments through their central banks own all businesses and property?

[Account Deleted]

This is quite correct. Lehmann's TBTF role as a critical vulnerability to the global financial system had nothing to do with depositors and everything to do with uncontrolled systemic counterparty risk.

Nevertheless, (re)building this wall would be a good step towards MAGA.

[Hunsdon]

The Democrats continue to make the mistake of thinking Donald Trump is just another Republican president. He is not. (Or he has, hereunto, not appeared to be so.) There is room for the presidency of Trump to be disruptive in the best sense of the word, shaking up the old orthodoxies, breaking some of the ideosclerosis (a hardening of the ideas) that locks the two parties into a good/bad, up/down, left/right paradigm. Glass-Steagal could be a great first step.

Or maybe Trump's just a cheetoh-headed capitalist like they say, or a bought and paid for tool of Bad Russia.

[Cortes]

Pam Martens is normally very good. Following is a History 101 (as I believe it's called in the US) on the Glass Steagall Act, with reference to current developments:

http://wallstreetonparade.com/2017/05/heres-why-trump-is-talking-about-breaking-up-the-biggest-wall-street-banks/

[Bill H]

Yes. Lehman was the trigger ans was never a deposit bank at all, and all of the biggest players in the 2008 debacle were non-deposit financial houses and insurance companies (think AIG).

That doesn't mean that I disapprove of reinstating Glass-Stegall; I think it's a fine idea, but it is an issue separate from the "too big to fail" bank issue.

[robt willmann]

The diabolical and scandalous financial and banking system that has evolved in the U.S., and elsewhere, is a cleverly designed structure for economic and political control and looting. But the good news is that is has been created by people and not by Mother Nature. This means that it can be understood in a fairly straight-forward way, especially when looked at from the standpoint of what it physically consists of, what the mechanics and physical acts are that take place during its operation, and its effects on the behavior of the public. When you strip away the abstractions and concepts, the system can be seen more clearly; otherwise it is hard to see the forest for the trees.

Making the Glass-Steagall Act the law once again will be a big, positive step. But you will have to watch the wording of any new version under a microscope. The original law from 1932-33 is hard to find. It was an amendment to the Federal Reserve Act of 1913. It was repealed by Public Law 106-102, signed by president Bill Clinton on November 12, 1999. That disgraceful repeal was also called the Gramm-Leach-Bliley Act, named after the awful former Republican Texas Senator Phil Gramm (who was rewarded with a job at the UBS bank), Iowa Republican Rep. James Leach (an appropriately-sounding last name), and Republican Rep. Thomas Bliley of Virginia--

https://www.congress.gov/bill/106th-congress/senate-bill/900/

https://www.congress.gov/bill/106th-congress/senate-bill/900/text

https://www.congress.gov/106/plaws/publ102/PLAW-106publ102.pdf

The first section did it with ease--

"Sec. 101. Glass-Steagall Act Repeals.
(a) Section 20 Repealed—Section 20 of the Banking Act of 1933 (12 U.S.C. 377) (commonly referred to as the 'Glass-Steagall Act') is repealed.
(b) Section 32 Repealed—Section 32 of the Banking Act of 1933 (12 U.S.C. 78) is repealed."

This simple language could also be used to repeal the Un-Affordable Care Act, a/k/a Obamacare, but it has not appeared.

Bringing back Glass-Steagall will not break up the current large banks, which were allowed to combine in the face of what used to be called the antitrust laws. Nevertheless, its re-enactment is essential--

http://wallstreetonparade.com/2015/10/exclusive-federal-reserve-videos-and-the-glass-steagall-media-conspiracy/

https://www.youtube.com/watch?v=86Q_G2o-ukw

https://www.youtube.com/watch?v=Q7V_xE_A_s4

http://wallstreetonparade.com/only-glass-steagall-can-save-the-u-s-from-another-epic-crash/

[Peter Reichard]

I see it the same way. Goldman-Sachs which will not be broken up under a new Glass-Steagall gains at the expense of J.P.Morgan and Citigroup which will be, hence the
support of the Trump/Goldman administration. Still, an encouraging development running counter to the coming further deregulation of Wall Street promised by the current government.

[Tel]

That "skin in the game" concept must necessarily also apply to depositors.

It is simply impossible for anyone to be able to store wealth indefinitely without some aspect of speculation. The problem is that many people were promised the impossible, and they believed it.

[Sam Peralta]

Deposit insurance is capped in the US. I believe only the first $250K in a bank is covered by the FDIC. So, those above that limit have some skin-in-the-game. I think that is a great principle and bailouts in general reduce that effect.

I agree that risk cannot be eliminated. It can only be transferred. Greenspan argued that with "new technology" risk could be dispersed to such an extent that leverage could be increased. Didn't work out that way when many investors headed to the exits at the same time during the last credit implosion! And similar with portfolio insurance during the 1987 swoon when it just exacerbated the fall.

[different clue]

JohnH,

Was that by the FBI peoples' own choice? Or was that under direct orders from Obama and Holder?

It seems to me that among all the millions of words I have read over time at Naked Capitalism ( too many millions of words to go back and find something in only a few hours), that I read about how evidence-gatherers gathered evidence and potential prosecutors prepared for possible prosecutions. And it was the HolderBama Department of Justice Obstruction which refused to prosecute every single time.

When Obama told those gathered Banking Racket Executives gathered at the White House "I'm the only thing between you and the pitchforks", he was reminding them of the gratitude he expected them to feel, and of the rich payoff rewards he was expecting from them after leaving office.

I don't see how we blame the FBI for that.

[different clue]

robt willmann,

If we were to simply pass a law-of-repeal repealing Gramm-Leach-Bliley in its entirety, and declaring that we have gone back to the previous Glass-Steagall status-quo-ante the GLB law, would that be enough to turn the old G-S law right back into being the Literal Law again, as it was before?

[hemeantwell]

You're confusing state capitalism with communism. What we have now is state subsidies that are privately appropriated. Communism, at least in principle, involves state subsidies for social appropriation. Maybe you don't think it is possible to define a public, as opposed to a private, good. If so, political theory certainly becomes simpler, history as well.

[Procopius]

Yeah, well Greenspan (and, I believe, Larry Summers and Robert Rubin) believed the free market would take care of everything sooooo much better than government regulation, because all the multimillionaire CEOs would naturally be so concerned to protect their corporations' reputations for honesty.