Ex-Wall Street Titan Agrees with Elizabeth Warren, We Need to Bring Back Glass-Steagall

warren1It’s not often you see common sense coming from “Wall Street people,” but in a rare showing of it, an ex-titan of the financial sector has spoken out in favor of logical legislation to curb rampant corruption going on in our banking sector.

John Reed, a key architect from the 90’s who was vital in making Citigroup one of the largest financial institutions in our country, has publicly said that he fully supports the reinstatement of Glass-Steagall.

Glass-Steagall was the piece of legislation which is best known for separating investment banking from commercial banking.  It was repealed in 1999 by former President Clinton, in one of the biggest mistakes of his presidency.

The repeal of Glass-Steagall is widely blamed as one of the biggest catalysts for the rampant corruption we saw leading up to the financial crash of 2008, and many economists say it led to the institution of “too big to fail” mega-banks.

Mr. Reed indicates that since the repeal of Glass-Steagall, it’s forced many bankers to trend towards the side of high-risk investments hoping for bigger payouts and, of course, a much larger chance for failure.

Reed went on to say, “These cultures don’t mix well and one tends to push out the other.  It does result in institutions whose behavior isn’t necessarily productive for the economy.”

Which is exactly what seems to have happened following the Glass-Steagall repeal in 1999.  Big banks, behaving unethically and not for the good of their customers or the economy, but for the benefit of their profit margins.

The reinstitution of Glass-Steagall has been one of  Massachusetts Senator Elizabeth Warren’s biggest objectives since becoming Senator.  A movement that actually has some bipartisan support, and whose opponents seem to offer no clear reasoning behind their opposition to reinstate a piece of legislation that simply made sense.

Shouldn’t we live by the rule of, if the big financial institutions that sank our economy oppose something, it’s probably something we should be supporting?

After all, in the first decade following the repeal of Glass-Steagall we saw the worst financial crash our country had seen in almost 80 years—caused by unethical behavior on Wall Street.

The very same Wall Street characters who vehemently oppose the reinstitution Glass-Steagall.

It reminds me of a criminal opposing laws which deter them from committing their crimes.  Of course they’re going to oppose this measure — it keeps them from continuing their immoral and unethical practices.

While Glass-Steagall wasn’t perfect, and some economists I’m sure will feverishly speak of its flaws, the aftermath of its repeal should be evidence enough to show that we’re a heck of a lot better off with it being in place than without.

But the question is, will Senators like Elizabeth Warren and John McCain get enough support in Congress to reinstate the legislation and bring some common sense back to our banking industry?

Well, let’s just say, I’m not going to hold my breath on “common sense” and “Congress” being involved in the same sentence any time soon.

But we can all hope — and we can certainly contact our elected officials and urge them to do the right thing.

Allen Clifton

Allen Clifton is a native Texan who now lives in the Austin area. He has a degree in Political Science from Sam Houston State University. Allen is a co-founder of Forward Progressives and creator of the popular Right Off A Cliff column and Facebook page. Be sure to follow Allen on Twitter and Facebook, and subscribe to his channel on YouTube as well.

Comments

Facebook comments

  • Anthonij

    Senator Warren in one of a handful of politicians on the national scene in this country that combines intelligence with common sense and honesty… Alas, I find it hard to imagine such legislation being passed again by this congress full of dunces and greedy louts.

  • Pipercat

    Wall Street owns Washington. Everyone will have to excuse me for not holding my breath…

    • DownriverDem

      If we changed the way elections/campaigns were financed, you would see a big difference. The way it is, the Dems need money to run just like the repubs. It’s all about the money.

      • Pipercat

        Sad, but true…

  • cosmopolite

    Glass-Steagall divorced commercial banking from investment banking, fearing that when a bank performed both functions for the same firm, namely lending to a firm and also underwriting some of its IPOs conflicts of interest were inevitable. Glass-Steagall may have been relevant in 1933 and for a generation after. But it was not very relevant during the years before the GFC.

    The problem in recent years is proprietary trading by commercial and investment banks, especially in derivatives not listed on an exchange. It is not at all clear either that Glass-Steagall was a sort of ersatz Volker Rule for its time.

    The GFC was triggered by a massive breakdown of common sense underwriting standards in the origination of mortgages. LVRs greater than 80% at origination should be allowed only for mortgages whose resale is prohibited. Mortgage bankers should be required to invest in a pro rate share of the mortgage backed securities containing mortgages they originate.

    Bank capital should be sensibly defined and strictly enforced. I am quite sympathetic to reorganising commercial banking along the lines suggested by Robert Litan in 1987: divorce deposit talking from loan origination. Credit would be extended by finance companies, that would issue CDs and commercial paper, as well as debentures and equity. These CD and commercial would be purchased by entities that would be like MMMFs, except with brick and mortar premises. They would invest deposits only in liquid marketable securities, never loans.

  • David_LloydJones

    John Reed coming out in favor of Glass-Steagall — after losing his job at CITI to superhustler Sandy Weill — is kinda like all those Republicans who come out for gun control after their kids get shot, or the ones who believe that gays are human once their children come out.

    A shame in a way: Reed did a fine job of helping get the banking system though the oil shocks of the 1970s, so he’s got a lot of credit coming to him. But…

    -dlj.

  • TommyNIK

    “It was repealed in 1999 by former President Clinton, in one of the biggest mistakes of his presidency.”

    Signing DOMA into law was the other.

    • Edward Kirby

      Rwanda. Oh, and Monica.