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Restoring Glass-Steagall

by E. Teresa Touey

We need to restore the Glass-Steagall Act now. Enacted during the Great Depression, it separated commercial banking from investment banking, providing our economy with stable economic growth for nearly 70 years. Large amounts of federal dollars have since been spent to stabilize a wrecked economy, including the TARP money approved by the Congress over the last three months of the Bush administration in 2008 and the economic stimulus package enacted by President Obama.The rationale sold to the public has been that the measures have saved us from another Great Depression. The reality of most Americans over the four quarters of 2009 and the first two months of 2010 contrasted starkly with that rosy picture. Americans are still losing jobs as well as the benefits attached to employment, such as retirement benefits, health care benefits and homes, even with the preservation of over half-a-million jobs attributed by the White House to the stimulus. Retirees are still reeling over lost retirement savings.

The most disappointing part of the new president’s first year has been the slow pace of accountability for the economic breakdown of our financial system. During the presidential primaries of  March 2008, former Federal Reserve chief Paul Volcker helped Barack Obama write a speech declaring that the de-regulatory efforts of the 80s and 90s has “excused and even embraced an ethic of greed, corner-cutting, insider dealing, things that have always threatened the long-term stability of our economic system.”

We need to restore prudent, sound rules to our financial system. We need to restore the Glass-Steagall Act. Harvard Business School Professor Elizabeth Warren is one of five outside experts who constitute the Congressional Oversight Panel of the Troubled Asset Relief Program. She has said that the repeal of the Glass-Steagall Act in 1999 contributed to the global financial crisis.

The repeal of Glass-Steagall gave permission to  commercial lenders to underwrite and trade instruments such as mortgage-backed securities, and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities.

The Glass-Steagall Act was a reaction to the collapse of a large portion of the American commercial banking system in early 1933. It allowed for the separation of bank types according to their business, namely commercial and investment banking. Also, it founded the Federal Deposit Insurance Corporation insuring bank deposits.

The credibility of President Obama and senior Democratic leaders in the Congress is being compromised by the fuzzy math of these cumulative decisions about  federal monies. Neil Barofsky, the inspector general charged with overseeing TARP, estimates that the total cost of the Wall Street bailouts could eventually reach $23.7 trillion. Voters are rightly sensing that the pockets of  Wall Street executives are being lined from these decisions. In the long run, with no real reform on the banks and the instruments that they used to profit at the expense of those with less power—most of us—we are jeopardizing not only retirement funds but more importantly the stability of the very system that is being gamed. This is highway robbery, modern style.

It is important that American voters begin to see President Obama and his advisers toughen up on transparency and accountability. Teddy Roosevelt and his rough riders style of busting the trusts comes to mind. President Obama is the ultimate enforcer of standing up to unfettered greed. He was elected on the promise of transparency to the political process.  His small steps are not enough to prevent a future re-occurrence of the same economic crisis. Those small steps include a backward-looking levy of 0.15 percent of any bank balance sheet of more than $50 billion aimed at recouping $90 billion used to bail out banks on the brink of collapse during the recent financial crisis; a forward-looking levy on banks considered “too big to fail” which is being discussed amongst G-7 finance ministers during informal winter meetings; and, using $30 billion of the money Wall Street banks have repaid to help community banks give small businesses the credit they need to stay afloat.

The banks need to see a credible threat from President Obama and our Congress from both parties that no one is too big to fail. We are a country built on an American Revolution. We—the small people—stood up to the power of the British Crown. It is time that average people see that gaming the system is not acceptable by anyone. No depositor is too small to be protected against abuses of executive privilege. Restoring the public’s confidence and trust in American leadership is essential. I believe that the voters deserve nothing less than safe, clean neighborhoods, a sustainable growing economy, and thus thriving communities with good schools. We can create a climate that would show that our banks can underpin a strong, sustainable, future prosperity.

If elected, I would use my office to support economic policy that fosters sound governance of a strong business community working in tandem with a more transparent, federal government. I will support public-private partnerships that restore the rules of generally accepted accounting principles to our international financial system. We must restore public interest over unfettered, self-interest. In order to rebuild the public’s trust, it is time for our President and the Congress to show that none of us are too small to be protected from banks who have proven to have grown too big to trust.

It is time for Teddy Roosevelt’s big stick to appear.

The writer is a Democratic candidate in the 7th Congressional District.

March 3, 2010 at 3:09 pm

--E. Teresa Touey

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