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Hard not to be in favor of this -- I wish them luck.
Spurning Obama, McCain and Cantwell propose resurrecting Glass-Steagall to break up Wall Street.
LINK
John McCain lost the 2008 presidential election because of the financial crisis—at least that's what his chief strategist, Steve Schmidt, suggested. "We were three points ahead on Sept. 15 when the stock market crashed. And then the election was over," Schmidt said in a postmortem earlier this year. McCain was tarred with the regulatory failures of the Bush years, and it didn't help that he had been a longtime acolyte of the Senate's dean of deregulation, Phil Gramm, who once derided Americans as "a nation of whiners." McCain also seemed to have few new ideas of his own about how to address the financial panic.
More than a year after the election, the Arizona Republican is looking to repair that reputation by joining up with Democratic firebrand Maria Cantwell to propose something that will be anathema to both Wall Street and the Obama administration. According to two congressional sources, the two maverick senators want to reinstate Glass-Steagall Act, the Depression-era law that forced the separation of regular commercial banking from Wall Street investment banking. The senators' proposal echoes a failed amendment introduced in the House last week by Rep. Maurice Hinchey of New York.
The Senate prospects for the success of the McCain-Cantwell bill—which the two plan to announce together on Wednesday morning—seem bleak at best. But McCain and Cantwell join a still small but not insignificant insurgency of chronic doubters, including former Federal Reserve chairman Paul Volcker, who say not nearly enough is being done to change Wall Street and, in particular, to address the "too big to fail" problem. The issue is one of the few in Washington that can unite the left and right sides of the political spectrum. Democrats like Cantwell deplore Wall Street's outsize role in the real economy and its lobbying influence, and conservatives such as McCain are appalled at the way the market system has been undermined—some would say rigged—by the power of the big banks.
Bankers and regulators, Volcker said earlier this month, "have not come anywhere close to responding with necessary vigor" to the crisis. He wants to ban federally guaranteed commercial banks from risky trading in derivatives and other arcane instruments that could precipitate another huge bailout some day. That too is a proposal no one who currently controls the levers of power in Washington is considering. But among those who now support Volcker is Arthur Levitt Jr., the former chairman of the Securities and Exchange Commission. "I tend to be in the Volcker camp in saying banks should either be investment banks or take deposits and make loans," Levitt told me in an interview this week.
Obama administration officials have dismissed the idea that the financial sector should or can be changed in more fundamental ways than they are now proposing. You can't turn back the clock, they say, and the new requirements they plan to impose on big banks to hold more capital in reserve, put up $150 billion for a rainy-day rescue fund, and disclose more of their risky trades should be enough to keep the financial sector from imploding again. Many of these requirements, among others, are contained in two giant bills making their way through Congress—one that passed the House last week and another that will be debated in the Senate in the new year. "I think going back to Glass-Steagall would be like going back to the Walkman," says one senior Treasury official.
On Monday the president met with top banking executives at the White House (some by speakerphone) to plead with them to do more lending, even as the last of them, Citigroup and Wells Fargo, agreed to pay back their bailout money and free themselves of government control. Obama chided the execs for unleashing their powerful lobby on Congress in order to restrain new regulation.
But Obama and his economic team are also coming under increasing attack from their own liberal, reformist base for paying more attention to health care and other issues than to the causes of the biggest crisis since the Great Depression. Among the harshest critics has been Cantwell, who has pressed Treasury Secretary Tim Geithner to take a firmer stand in preventing loopholes in derivatives legislation. "I think they've [the Obama team] said the right things, but they've left it entirely up to a Congress which is seduced by lobbying pressures," says Levitt. "Health care has become such a compelling initiative that everything else has taken a back burner." Though the crisis began on Wall Street, and Obama is decrying "fat-cat bankers" rhetorically, the British and Europeans are talking about taking far more dramatic action. Both British Prime Minister Gordon Brown and French President Nicolas Sarkozy have urged the imposition of a financial transaction tax on "hot" or speculative money and a tax of up to 50 percent on bonuses.
None of these is an easy or even necessarily wise solution. Reins uting Glass-Steagall would be almost akin to unscrambling an egg. By the time it was formally repealed in 1999, commercial banks like Citigroup had been moving gradually into investment banking for nearly two decades. Glass-Steagall had come under continual pressure as traditional commercial banks sought to follow their old clients into the capital markets, issuing stocks and bonds instead of borrowing the old way. Innovators like JPMorgan had gone global while the law still reigned at home, becoming big in the Euromarkets. "I don't think it's practical to think you can slice and dice classes of activities in any meaningful way," Gerald Corrigan, the former president of the Federal Reserve Bank of New York, told me recently.
Indeed, after last year's crash some experts concluded that the repeal of Glass-Steagall had little to do with it. After all, everybody—investment banks, nonbanks, insurance companies—had gotten into trouble: firms, in other words, that were not ostensibly changed by the repeal. Some even argued that the absence of Glass-Steagall made the cleanup easier: it allowed Bank of America to buy Merrill Lynch, for example.
But that critique missed a larger point that McCain, Cantwell, and other critics are now trying to address. The blinding complexity and interconnections created by modern capital markets—especially because of the way nearly half a trillion dollars in derivatives trades linked the firms to each other—demanded that there be strong firewalls and capital buffers between Wall Street ins utions and their affiliates, and between banks and nonbanks and insurance companies. Otherwise there would be no islands of safety—no healthy ins utions left to come and rescue the day, as commercial banks traditionally had done since the days of J. P. Morgan's famous bailout in 1907. The repeal of Glass-Steagall took things in precisely the opposite direction, eliminating most of the firewalls and inviting staid commercial banks into the buccaneering world of Wall Street trading. Representative Hinchey says it "was a recipe for disaster because these banks were empowered to make large bets with depositors' money, and money they didn't really have. When many of those bets, particularly in the housing sector, didn't pan out, the whole deck of cards came crumbling down and U.S. taxpayers had to come to the rescue."
Today the walls between firms still seem low indeed, and trading in derivatives that are "over the counter" (that is, out of public sight) continues at an astonishing pace, having risen back up to nearly $600 trillion worth. One big danger sign ahead is that the biggest banks have gotten even bigger in the aftermath of the catastrophe, and under the new rules requiring swap dealers to post capital for margin requirements, the big banks are likely to monopolize even more of this derivatives market and become that much richer and more powerful. That won't necessarily be a problem—unless the next crash proves once again that they cannot be allowed to fail, and the government must step in. Until McCain and Cantwell decided to speak out, very little that is currently under consideration by Congress or the executive branch would have changed that.
Hard not to be in favor of this -- I wish them luck.
Go For It. Retail banks (and insurance companies) exposing themselves to investment banking risks is what this recession is all about.
And regulate derivatives in an open exchange.
And make fund managers pay individual income taxes, not capital gains rates, on their mgmt income (which is a salary, not an investment of their own money.
And put a sales tax on every ing Wall St sale. That will chase the money overseas? I'm sure the Euros will be happy to match US sales taxes on financial sales.
Good to know our republican nominee is holding strong to his conservative principles.
...but, but, but...FREE TRADE!
Economy!
Communist!
but but unions, helping, compassion, we know how to run people lives.
Are you channeling voices again, SnC?
Did they say anything about Glass-Stegall?
What is "conservative" about TBTF? If a group of wealthy assholes expects the taxpayers to cover their ups (none dare call it socialism - but if a poor colored gets a handout then it's the end of civilization), then they can expect the taxpayers to place some limits on them.
Nothing's changed. Wall Street's Obama is carrying water just as well, if not better for them than his predecessor.
Perhaps SnC was channeling the blogosphere. There's left-wing opposition to this incredibly ty health care bill, too. Maybe he seized on it opportunistically to mock other posters as leftists for publicly registering their disapproval to the bill.
Who knows? SnC's posts can be challenging to decipher at times.
Last edited by Winehole23; 12-18-2009 at 03:56 PM.
Nothing is is conservative about TBTF. Just like nothing is conservative about glass-steagall.
There's nothing "conservative" about opening up the wallets of the middle class to provide socialism for the financial services industry. That is precisely what TBTF does, and the risk of that occurring, again, is heightened without some curbs on Wall Street. Otherwise you're just a sychopant fellating billionaires via the internets.
Isn't there a Palin story you haven't posted yet?
Odd that I agree with the commie union leaders. That must be because my boss Rush said to hugh.
Your schtick is getting old.
"(insert posters name)+(belittling disagreement)+(latin phrase)+(cynical comment about political parties)+(condescending remark towards a conservative poster)while sipping wine and listening to Dave Mathews band)
You are saying that the only thing to save the poor defenseless middle-class from the evil wall st. is govt. intervention. Furthermore the only interventionn that will work is one that was tried and failed?
Suppose say the government insures bank deposits.
In light of the recent epochal bailout of banking last fall, and the shenanigans that led to it, and the raft of unpleasant things it still carries along (133 banks failed this year alone, and 10% unemployment), wouldn't it be prudent for the government to shield the risk to US taxpayers from some of the more exotic risks of investment banking, as it did from 1933-1999?
Last edited by Winehole23; 12-19-2009 at 05:13 AM. Reason: and 10% unemployment
Where have I stated that TBTF worked? As for Glass-Steagall, it's far from the most preferable policy, but at least we didn't have the entire financial services industry take down the economy when it was in place and the national debt increasing by 50% in the matter of a year.
Further, at least once upon a time the Wall Streeters had some actual skin in the game. You know, back when there was at least some semblance of capitalism still in existence. Now there's profits or bailouts with your personal wealth intact. The change in ownership from partnerships to C corps had a lot to do with this current debacle. Of course, at least if TBTF wasn't unofficial official policy, then the losses would be born by investors in those companies. Or, if you are a brilliant exec who can mint money why would you ever want to give up ownership of the golden goose?
I've posted a couple, But not much more than that. Palin is fascinating.
Not really. The health care bill is really really ty.
All true to life but for the Dave Matthews Band. Definitely not my cup of tea."(insert posters name)+(belittling disagreement)+(latin phrase)+(cynical comment about political parties)+(condescending remark towards a conservative poster)
I'm a complaint-complainer. If so-called conservatives wander too frequently into my sights, so much the worse for them. I don't identify with any political faction tribally.
When conservatism is defined as the defense of Medicare from "socialism" the party is over and it's time to head to the after-party with a magnum of your favorite grape juice.
MCain's been on fire this week. Two bad his two proposals (legalizing drug imports being the other) have no chance in of happening.
A return to a plain vanilla retail banking scheme would seem like a no-brainer. Maybe that's why it's not gonna happen. The banks are probably saying they have to be allowed to take on even more crazy risk to get out of the hole...even though that's just how they got into the hole. Our government/Fed is in the literal position of selling crack to crack addicts, lending money to banks at rates just barely above zero. If the problem was liquidity it would have been solved months ago.
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If we try to regulate derivatives, they'll say we're ruining the market for their currently unmarketable products.
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Legalizing drug imports could have a significant, immediate effect on the cost of medical treatment for Americans. The competing Democratic plan coddles the *special interests*, guts the public option, and phases in the benefits 3-4 years from now. (doob's remark about the dems "half-throttling their own measures" is germane here, IMO.) For this reason alone, the Dems will probably be obliged to kill it. They can't pass a plan from the other side of the aisle that gets immediate results. It would be too incongruous with the very apparent incrementalism of the majority.
Last edited by Winehole23; 12-19-2009 at 05:32 AM.
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