By Pam Martens and Russ Martens of Wall Street on Parade
In the past two weeks, newspaper headlines have revived the debate on whether the mega Wall Street banks continue to pose a systemic threat to the U.S. banking system and the economy. This is a desperately needed public debate that demands facts – not a revisionist history of what actually caused the 2008-2010 Wall Street collapse and the worst economic downturn since the Great Depression.
This recent attention has been fueled by reports that Gary Cohn, former President of Goldman Sachs who now heads Donald Trump’s National Economic Council, met privately this month with members of the Senate Banking Committee and indicated he would be open to the restoration of a modernized version of the Glass-Steagall Act. (Mr. Cohn did not refute those reports.)
The 1933 Glass-Steagall Act was passed by Congress at the height of the Wall Street collapse and Great Depression. It acccomplished two equally critical tasks. It created Federally-insured deposits at commercial banks to restore the public’s confidence in the U.S. banking system and it barred insured commercial banks from being part of a Wall Street investment bank or securities underwriting operation because their high-risk speculative activities frequently blew up the house. That legislation protected the U.S. banking system for 66 years until its repeal under the Bill Clinton administration in 1999 at the behest of Wall Street power players like Sandy Weill of Citigroup. It took only nine years after its repeal for the U.S. financial system to crash, requiring the largest public bailout in U.S. history.
The problem with the newspaper debate today is that almost no one has their facts straight. On April 13, John Authers correctly wrote at the Financial Times that “The continuing yearning for Glass-Steagall shows that the world (not just the US) has not come to terms with the crisis of 2008. Justice has not been seen to be done; remedies to prevent a repeat have not been seen to be applied. Dodd-Frank has failed to instill confidence.” All that is absolutely true. But Authers also bizarrely states that “Bringing back Glass-Steagall would not alter the scale of today’s financial institutions.”
The Financial Times journalist is apparently not aware that the hundreds of trillions of dollars of derivatives sitting on the books of the biggest Wall Street banks would not exist but for the insured deposits providing the ballast and credit rating…