By Nancy Spannaus
April 27– New York has become the 17th state where memorials demanding the reinstatement of Glass-Steagall have been introduced. On April 24, Assemblyman Phil Steck introduced a resolution “urging the New York State Congressional delegation to support efforts in the U.S. House and U.S. Senate to reinstate the Glass-Steagall Act.”
Steck’s efforts, which include a Dear Colleague letter to his fellow Assemblymen, are complemented by the actions of State Senator James Sanders, who issued a letter March 17 urging his colleagues to sign on, and join him in urging the New York State Congressional delegation to support Rep. Marcy Kaptur’s HR 790, which would reinstate Glass-Steagall.
After laying out how the elimination of Glass-Steagall has harmed the economy, Assemblyman Steck’s resolution concludes:
RESOLVED: That this Legislative Body pause in its deliberations to urge the entire New York State Congressional delegation to support and enact in Congress the legislation that would reinstate the Glass-Steagall Act, including the separation of commercial and investment banking functions that were in effect under Glass-Steagall, thus securing a safe American banking system, which can protect deposits, and supply needed credit for a productive economy, protect state finances and the well-being of our citizens, and remove any national protection of investment in stocks, underwriting of securities or investing in or acting as guarantors to derivative transactions or other activities deemed “non-bank” activities under the Glass-Steagall law.
The other states where Memorials for Glass-Steagall (some of which locate it as the first step in a broader recovery program) have been introduced are (in alphabetical order): Alabama, Delaware, Illinois, Iowa, Maryland, Michigan, Minnesota, Mississippi, New Mexico. North Carolina, Ohio, Pennsylvania, Rhode Island, Virginia, and Washington State.
Signs of Momentum
Over the last month, the political motion behind reinstating Glass-Steagall has grown significantly.
First, on April 6, Sen. Elizabeth Warren (D-Mass.) reintroduced the 21st Glass-Steagall Act, along with the cosponsors who joined her in the last session: Sens. Maria Cantwell (D-Wash), Angus King (I-Me.), and John McCain (R-Ariz.). Since that time, two Senators have joined in: Sen. Kirsten Gillibrand of New York State (D) and Bernie Sanders of New Hampshire (I). Upon introducing their bill (S 881), the Senators stressed the statements coming from the Trump Administration in support of a 21st Century Glass-Steagall Act as a sign that time was ripe for this action.
Senator Cantwell immediately followed up the bill’s introduction by issuing a petition for mass support for the legislation. She has been joined in the petition drive by Americans for Financial Reform, the AFL-CIO, and other civic groups. There are reports that 250,000 citizens have already signed the online petition urging the reinstatement of the bill.
April also saw memorials urging the reinstatement of Glass-Steagall introduced into the Pennsylvania and Michigan state legislatures. Eleven Democratic lawmakers from the major urban centers of the state introduced a memorial for Glass-Steagall (HR 268) on April 21 in the Pennsylvania House. State Senator Bertram Johnson introduced a “resolution to urge the President and Congress of the United States to pursue a long-term, durable infrastructure- and industrial-driven economic recovery plan” (SR 59) into the Michigan Senate on April 26. The first step of this plan is Glass-Steagall. He was joined by three other Senators.
In addition to Glass-Steagall, the Michigan bill specifies three further actions: the creation of a new national bank, the utilization of funds from the bank and private banks to finance “a large-scale infrastructure program,” and finally, the “Establishment of a new space program that capitalizes on scientific and human advancement by building a manned presence on the moon and exploring the far reaches of our solar system.”
The resolution gives historical examples of credit and infrastructure surges (such as under the Presidencies of George Washington, John Quincy Adams, Abraham Lincoln, and Franklin Roosevelt.) “Most of the infrastructure of the nation was built under these successful programs, and through these efforts, Michigan’s booming industrial sector during the Second World War endeared the Great Lakes state to the nation as part of the `Arsenal of Democracy…'”
Handwriting on the Wall
While the consensus of Washington political pundits is that Glass-Steagall has no chance of passage, despite lip-service from the Administration, the introduction of the Senate bill, in particular, has stirred up a hornets’ nest of attacks against the legislation. Publications from the Financial Times to the Wall Street Journal, the American Banker, and by the Heritage Foundation have dusted off their shop-worn lies about how, on the one hand, Glass-Steagall would not have stopped the 2008 financial crash, and on the other, how its implementation would be a disastrous disruption of what is now allegedly a perfectly safe, if allegedly over-regulated, banking system.
Why such a strident reaction? Apparently, some on Wall Street and in the City of London think there is a chance the legislation would pass—and that it would be aided by the fact that, far from being safe, the United State banking system stands on a brink of a new financial crisis with mass corporate defaults. A sober analysis shows that there is a debt bubble in commercial mortgage-backed securities (CMBS), real estate investment trusts (REITs) and leveraged U.S. corporate debt in general, which could blow out this year. The United States now has $14 trillion in debt of non-financial corporations, compared to $8 trillion in 2007.
Morgan Stanley Research published a detailed report April 20 which found that non-financial corporate debt to cash-from-operations is at an all-time-high ratio of 3.2:1 (2.7:1 is the highest it’s ever been before). The debt-to-EBITDA (earnings before interest, taxes, and depreciation) leverage of these corporations is equal to its all-time high.
If Glass-Steagall is reinstated, the banks which have held this debt won’t get bailed out the way they did in 2008, at taxpayer expense. Nor will the necessary recovery in real economic growth materialize. In other words, Glass-Steagall is not an option; it’s a necessity.