Cantwell, McCain see chance to rebuild
Sun., Dec. 20, 2009
Sens. Maria Cantwell and John McCain, who as Westerners know good fences make good neighbors, have set about repairing a barrier rashly torn down 10 years ago.
The Washington Democrat and Arizona Republican have proposed the reinstatement of the Glass-Steagall Act, which Congress overwhelm- ingly repealed in 1999. McCain joined in the demolition then.
A $700 billion bank bailout later, he’s back in the fencing business.
“It is time to put a stop to the taxpayer- financed excesses of Wall Street,” McCain said Wednesday. “No single financial institution should be so big that its failure would bring ruin to our economy and destroy millions of American jobs.”
Kind of late for that, as it was in 1933, when Glass-Steagall was enacted by lawmakers cleaning up the mess left by the overheated speculation that collapsed into the Great Depression. Thereafter, institutions that had fed the flames by risking depositor money in securities trading were forced to choose between making loans to businesses as a commercial bank or underwriting the sale of securities as an investment bank. They had one year to decide.
The wall between the two activities remained intact for 66 years.
We can thank Citibank for the push that knocked down Glass-Steagall and allowed the intertwining of financial activities that nearly choked the U.S. economy. Citibank bought Travelers Insurance, creating the world’s largest financial institution, despite the law preventing the bank from engaging in insurance underwriting. No problem, change the law. And so it was done.
Apologists for the repeal, including former President Bill Clinton, say the change has nothing to do with the problems that brought down Bear Sterns, Lehman Brothers and Merrill Lynch, now a part of Bank of America. That may be true in a literal sense. But commercial and investment bankers certainly found common cause abetting asset inflation, lining campaign coffers, and neutering regulators.
American taxpayers rescued them from the brink of ruin, and they’re getting jerked around on credit card rates for the trouble. Millions are insecure in their homes and businesses, and wonder that five institutions control 50 percent of bank-owned assets. And as they watch congressional efforts to enact new consumer safeguards, they see the weight of the banking lobby blocking the way.
“The American people are frustrated,” Cantwell said. “They know that capital is not flowing to them.”
If they cannot take Wall Street, they want to retake Main Street, and re-implementing the barriers once embedded in Glass-Steagall represents a proven way of doing just that.
The House of Representatives has already finished with its reform bill. The Senate Banking Committee — neither Cantwell nor McCain are members — has begun its work. The two Westerners have thrown their hats into the game rather late. But staff members say there is plenty of time, and this Congress knows how to run down the clock.
Maybe it was a slow news week, maybe it was the quaint idea a now 76-year-old piece of legislation could be the wave of the future, but Cantwell and McCain stirred up a bit of dust with their proposal.
Now all they have to do is convince their brethren that good fences make good finances.
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