And a big thumbs up to letting banks put the money in deposit accounts in the same kind of risky bets that their investment accounts are in. I can’t say that I’m too surprised at this — banks do own the road here — but I’m still appalled at this position. It is a position that is ONLY good for banks — the rest of us with deposit accounts (and who pay taxes) are definitely the losers here. Because the point of a Glass-Steagall 2 is to separate the deposit accounts (the only part of the banking business explicitly guaranteed by the feds), from the investment business (which is not insured). The point of Glass-Steagall 2 is to dismantle one more part of the TBTF scheme — specifically the part where banks get to privatize their profits and get to socialize their losses. Until taxpayers get a say in the risks (and get a cut of the benefits) of the TBTF business, taxpayers should not backstop what the banks do here.
But look:
Carper spokeswoman Emily Spain said “broadly speaking,” Carper “does have some concerns about returning to Glass-Steagall given that this law was established in the 1930s and since then much about our economy has changed including many aspects of our global marketplace. “He is particularly concerned that the Glass-Steagall provisions crafted in the 1930s wouldn’t necessarily have been able to prevent the events that led to the 2008 financial crisis,” she said.
Coons spokesman Ian Koski said Glass-Steagall was “effective legislation when it was adopted after the Great Depression and for several decades after that, but the nature of financial institutions has changed since then. Dodd-Frank includes several provisions that would address too-big-to-fail institutions, including an enhanced regulatory regime and liquidation authority.”
“While the governor supports safeguards that will protect taxpayers from future financial crisis, Glass-Steagall provisions may not have averted the 2008 financial crisis and are probably not appropriate for today’s global financial marketplace,” Markell spokeswoman Cathy Rossi said about the governor’s opposition.
Right? Everyone is concerned about the changes in financial institutions since the first implementation of Glass-Steagall. What these synchronized talking points don’t tell you is that financial institutions changed as Glass-Steagall was chipped away and then finally repealed. What these synchronized talking points won’t remind you of is that Glass Steagall was implemented after the Great Depression (with much pushback from banks) and it took 70+ years for the next major banking crisis — occurring 8 years after Glass Steagall was repealed. What these synchonized talking points won’t tell you is exactly *what* it is about competing in the global banking system that would be restrained by re-implementing Glass Steagall. What these talking points also don’t tell you is that the British and the EU are in the process of implementing some of the Glass-Steagall separations. Interesting that European and British banks will still be competitive after an effort to protect deposit accounts and taxpayers. The Financial Times has been a big advocate of some of the Glass Steagll provisions, and makes the case that it is the markets themselves that dictate re-implementing these regulations:
How did that work out? Let the market be the measure. On the eve of the agreement to repeal Glass-Steagall, on October 24 1999, the S&P 500 financial services index traded at almost 3 times book value. It now trades at 1.3 times book. Trailing 12-month earnings per share for the sector are lower now than they were in October 1999. The financials index as a whole has fallen 15 per cent – although with dividends included, it has made a positive return of 15.2 per cent, or about 1 per cent per year. Repealing Glass-Steagall was terrible for shareholders.
Notice also, that this clear and definite backing of the bank’s position on re-implementing Glass-Steagall comes from Senators who are much less resolute in their support of making sure that Social Security is safe, solvent and delivers on its promises. Banks are to be protected from being hurt so they can continue to live with taxpayers backstopping that risk. Taxpayers counting on Social Security will be subject to “hard choices”, without either of these Senators championing the cause of Social Security with the same vigor they’ll champion banks.