Wednesday, October 26, 2011

Glass - Steagall

            There are a lot of bills, laws and acts that are being talked about in the political field. In the midst of a presidential campaign season there may be things thrown around that we don’t know about. So I’m starting a series to clear up any confusion on some of these things. I’ll provide general information on each item, discuss the positive and the negative and then state where each candidate stands on the issue.

I’ll start today with Glass – Steagall.

Glass – Steagall was an act enacted in 1933 under President FDR. This act established the Federal Deposit Insurance Corporation (FDIC) and controlled speculation. FDR, Carter Glass and Henry Steagall were hoping, with this new act, to prevent another major market crash and another economic depression. They did this with two things, first, speculation control, as speculation was one of the causes (as well as bank running) of the Stock Market crash of 1929 and of the Great Depression and second the FDIC which provided deposit insurance in hopes of preventing any more mass bank runs.

            This was fine, for a while, and the market worked with it for a long time, but then we started to see some changes in the laws. Let me start with the Depository Institutions Deregulation and Monetary Control Act of 1980. This act removed the power of the Federal Reserve Board of Governors under the Glass–Steagall Act and Regulation Q to set the interest rates of savings accounts and allowed institutions to charge any interest rates they chose. This of course is laissez – faire economics in the spirit of presidents like Warren G. Harding. After fifty years of successful bank regulation, Jimmy Carter (in attempts to win reelection?) decided to deregulate the banks a bit and gave some of the FDIC’s power to the Federal Reserve.

            Nineteen years later, under President Bill Clinton the Gramm – Leach – Bliley Act is signed into law. This act effectively removed the separation that previously existed between investment banking which issued securities and commercial banks which accepted deposits. So under this new law banks could merge and then take your deposited money and use it to gamble on hedge funds. What we saw nine years after the signing of this act was a huge failure of hedge funds, this mixed with the crash of the housing market a year earlier meant the banks were supposedly broke, they didn’t have money to lend was the general opinion. So President Bush enacted TARP, which was bank welfare (some call it reverse socialism).

            In response to these financial crises and the runaway banks Obama initiated the Wall Street Reform and Consumer Protection Act, which is more popularly known as the Dodd – Frank bill (I will talk about that more in depth in a later piece.) This act, while creating more bureaucracy in the federal government, didn’t replace any of the formerly removed integrity of Glass – Steagall, it simply said to the American people, “I hope that you can trust bank bought politicians to regulate the banks.” Some how I for one will have some trouble with that.

            I personally believe that Glass – Steagall in full and original form, is a good thing. The counter argument is that it is a big government law and that it doesn’t allow the free market to thrive. The freedom of capitalism is not the problem here. The problem instead is that we see banks buying politicians and in return politicians are deregulating the banks that are running away with our money. Both the money we deposit into their coffers willingly and the money we unwillingly give them through tax dollars. But I’m not running for president. Let us see what the candidates have to say on this particular issue:

Michele Bachmann: She thinks that Dodd – Frank goes too far and is a Tea Party favorite, so while I cannot find a statement from her on Glass – Steagall, I imagine that she is okay with the fact that it is mostly repealed through the acts mentioned above.

Herman Cain: “Don’t blame Wall Street, don’t blame the big banks, if you don’t have a job and you’re not rich, blame yourself.” If I can get away with it, I’m going to go ahead and say this is all that is needed on Herman Cain’s positions on financial and Wall Street reforms.

Newt Gingrich: He was the Speaker of the House responsible for the Gramm – Leach – Bliley bill.

Jon Huntsman Jr.: This was a quote from Jon Huntsman after the October 11th Bloomberg debate: “I want to return to the spirit of Glass Steagall. You’ve got to look at, fundamentally look at, downsizing some of our banks, looking at some sort of a cap requirement on the size of things. When you have financial institutions of which there are six and any one of them collapsing could cause such dire reverberations in the global economy that it could be catastrophic, it becomes too big to fail. Not Glass-Steagall from the 1930s but something in the spirit of Glass-Steagall, something that would ultimately right-size banks.” ( )

Gary Johnson: In typical Gary Johnson fashion, the former New Mexico governor had this to say: “I understand how that may have exacerbated all this, so I think reinstating it [Glass – Steagall] might be a good thing.” (it is a general quote, but it was in response to this question: TCR: What about Glass-Steagall, the law repealed in the last year of the Clinton administration, that had kept the investment banks and the commercial banks separate? Some people blame the crisis largely on the loss of that law. Do you think we should reinstate it?) You can find the whole interview here:

Fred Karger: I was not able to find anything in the way of Fred Karger being for or against Glass – Steagall. I will add that he seems to support Occupy Wall Street and has some interesting ideas, such as: Aside from easing the job search for unemployed Americans with a centralized website, Karger would also like to see tax credits given to those who need to relocate to find a job. ( )

Barack Obama: See Dodd – Frank and the Volcker rule. Obama is not for Glass – Steagall or he would have pushed for it to be reinstated, but he has implemented these ‘Glass – Steagall lite’ laws.

Ron Paul: Voted against Gramm – Leach – Bliley, though he’s for a completely free market sans of even Glass – Steagall.

Rick Perry: Rick Perry has close ties to Phil Gramm, the Gramm in the Glass – Steagall repealing Gramm – Leach – Bliley Act. This, combined with Rick Perry’s statement to ‘Free up’ Wall Street probably means he’s against Glass – Steagall.

Buddy Roemer: Buddy Roemer would reinstate Glass – Steagall.

Mitt Romney: Mitt Romney would repeal Dodd – Frank. But let us not forget that Mitt Romney is the candidate who helped start Bain Capital.

And lastly

Rick Santorum: Rick Santorum voted in favor of Gramm – Leach – Bliley while in the Senate.

            There it is, all wrapped up. Now you know more about Glass - Steagall and even know a little bit more about the financial industry and crisis in this country. I hope that you are still open-minded about which candidate to support, regardless, and I hope that this helps you in your ultimate decision. Expect another piece soon.

- Joshua Fisher


"Those that dream by night, in the dusty recesses of their mind, wake in the day to find that all was vanity, but the dreamers of the day, are dangerous men, for they may act out their dreams and make them real."


  1. You fail to note that Glass-Stegal was repealed on a BI-PARTISAN vote and signed into law by Bil Clinton! Congressman Dingell warned it would lead to a govt bail-out only to be proven right. Clinton's Sec Treas rubin pushed it and left early to take over at CitiCorp even before it was legal! Larry summers continued to push it after rubin left! Clinton was in bed with Goldman and the Wall St banks just like Bush was and Obama is and WE THE PEOPLE continue to be sold a bill of goods by BOTH political party! Ron Paul & Ross Perot warned us and America ignored them!!

  2. "Reckless Endangerment" by NY times biz writer Gretchen Morgensen is a MUST READ if you want to understand the TRUTH about how WASHINGTON sold America to the highest bidder and BOTH political party is guilty!!

  3. I didn't mean to make it sound like I was attacking one party and not the other. 99.9 percent of politicians and States People are bought and paid for. There are only two candidates running for president that aren't bought and paid for right now are Buddy Roemer and Ron Paul. Mitt Romney is bought by every big bank in America. And I mean to get into this (Money in politics) in my next blog on Dodd - Frank.

  4. Thank you for the recommendation. I will definitely try to get my hands on that book.