Gassy Seagull Spirits?
No, the spirit of Glass-Steagall, as in that’s what the current White House plans revive with an imminent proposal to curb the power of big banks. (WSJ via HuffPost.)
“President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country’s biggest banks, marking the administration’s latest assault on Wall Street in what could mark a return, at least in spirit, to some of the curbs on finance put in place during the Great Depression, according to congressional sources and administration officials.”
Before it was repealed in 1999, the Depression-era Glass-Steagall Act kept banks banks and investment firms investment firms. An excellent timeline by PBS’s Frontline explains that the act sought to–
“… limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors. [Sound familiar?] The new law bans commercial banks from underwriting securities, forcing banks to choose between being a simple lender or an underwriter (brokerage). The act also establishes the Federal Deposit Insurance Corporation (FDIC), insuring bank deposits, and strengthens the Federal Reserve’s control over credit.” [snarky comments added by me.]
The timeline adds that support for passage of the bill was drummed up by “Ferdinand Pecora, a politically ambitious former New York City prosecutor,” who hauled “bank officials in front of the Senate Banking and Currency Committee to answer for their role in the stock-market crash.”
Let’s see which ambitious politician is ready to take on the banks this time and fly with the gassy seagull spirits once again.
If you want a window into just how craptastic Wall Street’s behavior was during the housing bubble–and quite likely still is–try to pick up the full version of “The Sure Thing” in the New Yorker. While largely about entrepreneurial risk-taking, it tells the story of how one hedge-fund manager and one researcher saw the crisis clearly and made billions of dollars shorting a mortgage market they knew would eventually implode.
There’s plenty more at “the wall street fix.”