Ten Years Ago Glass-Steagall Was Repealed

Ten years ago, We the modern people believed we had come so far since the days of the Depression that we decided to repeal the Glass-Steagall Act.

In today’s environment there are very few things Republicans and Democrats, conservatives and liberals, agree on. But they do agree that repealing Glass-Steagall was definitely a problem that led to the economic collapse that we are currently experiencing.

Ten years ago yesterday Senator Phil Gramm (R-Texas) and Representative by Jim Leach (R-Iowa) led the Congress into approving to repeal the act and Democrat President Bill ClintonBill Clinton signed it into law.

Bill Clinton was in office but the Congress was controlled by the Republicans.

After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. The final bill resolving the differences was passed in the Senate 90-8 (one not voting) and in the House: 362-57 (15 not voting). The legislation was signed into law by President Bill Clinton on November 12, 1999.

90 to 8 the repeal was passed. Who were the 8 Senators that foresaw the problems that the repeal was going to pass?

Well one of them was a Democrat from North Dakota, Senator Byron DorganByron Dorgan. This is what he had to say ten years ago:

“I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010. I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''

Another one of the Senators was Paul Wellstine, Democrat from Minnesota. This is what he had to say:

''[Congress had]seemed determined to unlearn the lessons from our past mistakes. Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis. Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring. Now Congress is about to repeal that economic stabilizer without putting any comparable safeguard in its place.''

Wonder what the supporters of the repeal said to these two Senator’s claims? Well we know that every Republican(except one) voted to repeal because it was a Republican idea, so let’s ask the Democrats that voted for it.

Let’s ask Senator Bob Kerry, Democrat from Nebraska ten years ago:

''The concerns that we will have a meltdown like 1929 are dramatically overblown.''

And what say you Charles SchumerCharles Schumer, Democrat from New York?

''If we don't pass this bill, we could find London or Frankfurt or years down the road Shanghai becoming the financial capital of the world. There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive.''

Well what did the newspapers say back then?

Let’s check with the New York Times:

Other lawmakers criticized the provisions of the legislation aimed at discouraging community groups from pressing banks to make more loans to the disadvantaged. Representative Maxine WatersMaxine Waters, Democrat of California, said during the House debate that the legislation was ''mean-spirited in the way it had tried to undermine the Community Reinvestment Act.'' And Representative Barney FrankBarney Frank, Democrat of Massachusetts, said it was ironic that while the legislation was deregulating financial services, it had begun a new system of onerous regulation on community advocates.

Many experts predict that, even though the legislation has been trailing market trends that have begun to see the cross-ownership of banks, securities firms and insurers, the new law is certain to lead to a wave of large financial mergers.

The White House has estimated the legislation could save consumers as much as $18 billion a year as new financial conglomerates gain economies of scale and cut costs.

Other experts have disputed those estimates as overly optimistic, and said that the bulk of any profits seen from the deregulation of financial services would be returned not to customers but to shareholders.

These are some of the key provisions of the legislation:

*Banks will be able to affiliate with insurance companies and securities concerns with far fewer restrictions than in the past.

*The legislation preserves the regulatory structure in Washington and gives the Federal Reserve and the Office of Comptroller of the Currency roles in regulating new financial conglomerates. The Securities and Exchange Commission will oversee securities operations at any bank, and the states will continue to regulate insurance.

*It will be more difficult for industrial companies to control a bank. The measure closes a loophole that had permitted a number of commercial enterprises to open savings associations known as unitary thrifts.

Here are the names of the Senators still serving in the Senate that had the foresight to vote nay on the repeal.

Maybe we should listen to them when they recommend something as far as economics are concerned:

Richard C. Shelby of Alabama, Republican
Barbara Boxer of California, Democrat
Russell D. Feingold of Wisconsin, Democrat
Tom Harkin of Iowa, Democrat
Barbara A. Mikulski of Maryland, Democrat
Byron L. Dorgan of North Dakota, Democrat

Byron Dorgan was asked what should be done to fix the problems we are facing right now. He offered three items:

1. Bring back the Glass-Steagall Act
2. Prohibit derivatives on Wall Street by banks that are backed by FDIC
3. Get rid of “Too Big To Fail”

These all seem pretty easy to implement…the question is why hasn’t it already been done?

Here’s a link to a New York Times blog entry looking back at the repeal:

http://dealbook.blogs.nytimes.com/2009/11/12/10-years-later-looking-at-repeal-of-glass-steagall/