July 31—All it took was the inclusion of a call for a return to Glass-Steagall banking separation in both the Republican and Democratic Party platforms, and Wall Street was off and running in a way we haven’t seen since the Summer of 2013. At that point, the Return to Prudent Banking Act of Rep. Marcy Kaptur (which would restore Glass-Steagall standards) had garnered more than 80 co-sponsors in the House, and Sen. Elizabeth Warren had just introduced the 21st Century Glass-Steagall Act into the U.S. Senate. The bankrupt Wall Street bankers started screaming bloody murder.
Their fight-back, aided by their control of key Republican committee chairmen, succeeded at that time in preventing the popular momentum for Glass-Steagall from translating itself into action in the Congress. But now, as the derivatives-sodden global financial system heads toward another breakdown, Glass-Steagall is back. And despite the fact that no one believes that Hillary Clinton or Donald Trump intends to put it into effect, Wall Street is deadly afraid.
Both Republican and Democratic pundits have identified some of the reasons for the anxiety. In the United States, the apparent inevitability of the re-enactment of Glass-Steagall is also increasingly discussed.
Start with Elaine Kamarck, a Clinton Democratic superdelegate and top campaign consultant. She wrote July 25 that “by agreeing to place reinstatement of Glass-Steagall in the Democratic platform, Hillary Clinton signaled that she too would support it…. To date there hasn’t been much interest in this in Congress. But if the establishment heard one thing loud and clear in the 2016 primaries, it was that millions of Americans think that they were the victims of Wall Street and that the next president had better pay attention.”
On the Republican/banker side, the commentaries of Keefe Bruyett & Woods investment bank analyst Brian Gardner are to the point. On July 26, CNBC published an article by him on “Why Big Banks Could Be Broken up No Matter Who Wins the White House,” which repeated his previous warning that Wall Street should not dismiss the potential for Glass-Steagall to actually be passed. He adds: “We’re now pretty sure we’re going to have a very close presidential election. I think a few weeks ago people thought Clinton would win this easily and Trump could implode and that would take down House Republicans. That now seems a remote possibility. Now the more likely outcome is a close election that could go either way, and that does not signal a shift in the House. It does not suggest a tidal wave of Democrats in the Senate…. We’re going to go have a closely divided Congress and we’re going to have a president who in order to get anything done is going to have to negotiate…. In that kind of environment, people are foolish to dismiss the reintroduction of Glass-Steagall.”
The official voices of the bankers, on the other hand, are striking a shrill tone. Two examples will suffice:
The American Banker magazine of July 29 ran two articles attempting to counter the Glass-Steagall proposals put forward at the conventions. In “How Glass Steagall Crashed the 2016 Conventions,” the author stated: “The Glass Steagall Act of 1933 was an unexpected and prominent part of the Democratic and Republican conventions this year, as both parties added a call to reinstate the law as part of their party platforms. But that will be easier said than done, considering that lawmakers from both sides of the aisle have shown little interest in the idea…” That’s a lie, of course, or the magazine wouldn’t even have taken notice of the inclusion.
The Wall Street Journal did its part the same day with an editorial entitled “Glass-Steagall-Trump-Clinton Act,” where the editors claimed that the re-regulation would be “pointless” and “irrelevant,” but gave away their concern, in part, when they noted that “banks today are highly integrated and breaking them up would be difficult and highly disruptive.” Ah yes, disruptive—to the gambling game that Wall Street, and its City of London big sister, are carrying out at our expense.
As to substance, the bankers and their mouthpieces still insist that the elimination of Glass-Steagall in 1999 had nothing to do with bringing on the disastrous crash of 2007-08, allegedly because it was the investment banks, not the commercial banks, whose behavior brought on the crash. But if they truly believed that line, why would they be so concerned about its reinstatement? They could let it be put into effect, and go on with their investment banking scams unscathed.
But the reality is that the bankers are lying. As leading banking authorities have documented for years, it was the dismantling of Glass-Steagall-style banking separation (over a period of time, but culminating in 1999) which resulted in the effective total merger of all kinds of banking operations under huge bank holding companies, such as JPMorgan and Citibank, permitting those institutions to utilize the deposits from commercial banks to plunge into shadow banking operations, and especially derivatives speculation, which now represents hundreds of trillions of dollars of obligations piled on top of the financial system. The U.S. Treasury Department itself declared in a March 2016 report that credit derivatives were at the core of the 2008 crash (cf. “The Big Short”). The huge banking holding companies, now estimated to be holding about 30% more derivatives debts than they did in 2007, are effectively gargantuan monsters, whose functions are all interconnected, and have to be broken up if the cancerous speculative activity is to be removed.
Will It Happen?
There’s no telling whether sane forces in Washington, or elsewhere, will actually move ahead with Glass-Steagall in the short term, of course. The fact that the German paper Handelsblatt, the leading financial paper on the European continent, took note of the U.S. political moves toward Glass-Steagall in its July 22 edition under the title “Separate What Does Not Belong Together,” indicates significant interest in Europe within banking circles. In the United States, it’s mostly the opposition to Glass-Steagall that’s making a ruckus, but observers on the scene at the Democratic Convention report intense interest among delegates, particularly those who supported Sen. Bernie Sanders, to move ahead with both the banking separation, and new credit-creation policies to rebuild the economy, as have been laid out by economist Lyndon LaRouche for decades.
But Wall Street is worried. And a sane policy on the part of the U.S. population would be to give them something to really worry about—and the American people something to celebrate—by finally reinstating Glass-Steagall as the first step in reviving a Constitutional Hamiltonian system of prosperity for the United States, and the world.