by Nancy Spannaus
Sept. 27, 2017—In an approximately 50 minute webinar, held at AFL-CIO headquarters in Washington, D.C. Sept. 26, representatives of several citizen and labor groups launched a renewed mobilization for reinstituting Glass-Steagall banking separation. The webinar was jointly sponsored by Public Citizen, Americans for Financial Reform, and the Our Revolution movement with the express purpose of educating and motivating the public to put pressure on Congress to act now.
From the outset, the presentation was enhanced by clear graphics which emphasized what Glass-Steagall’s reinstatement would mean for stopping speculation and restarting productive investment, and the coalition’s immediate organizing objectives. The stated goal is to increase the sponsorships of the major House bill, Rep. Marcy Kaptur’s H.R. 790, from 56 to 100, and of the Senate bill, Sen. Elizabeth Warren’s S. 881, from 8 to 20. “Build bipartisan support” flashed on the screen, along with the number by which citizens can reach their representatives in Washington. [The full video can be watched here.]
After a brief introduction by Ohio Revolution representative Mayo Makinde, Rep. Kaptur (D-Oh) and her cosponsor, Rep. Walter Jones (R-NC), addressed the webinar by video, with short appeals for citizens to pressure their colleagues. Kaptur stressed the need to return to banking with serves the vast majority of Americans, who now see their savings paying a pittance, and their economy destroyed by predatory banking. Jones said, “We need to {reinstate} Glass-Steagall. I voted to repeal it, and see how that mistake has accumulated over the years. We need many more Republicans to join in — we can’t do it without you. Both parties have it in their platforms.”
The Panel Discussion: Speculation must be stopped with Glass-Steagall
The panel discussion was chaired by Bart Naylor of Public Citizen, who posed questions to financial author Nomi Prins, Americans for Financial Reform representative Marcus Stanley, and AFL-CIO representative Heather Slavkin Corzo.
Naylor began by identifying two major aspects of Glass-Steagall: first, its provision of FDIC guarantees for commercial deposits; and second, the regulation that commercial banking be limited to activities which improve the economy, not speculation. He then asked Prins to describe how the repeal of Glass-Steagall in 1999 changed those parameters.
Prins, who has worked on Wall Street as well as studied its history, painted a picture of the mentality of greed which was unleashed by the repeal. Everything became focused on how to increase the number and amount of fees by making transactions more and more complex, and on maximizing the opportunities for speculation. New instruments were created, such as derivatives, and lending became more and more non-productive. “Reinstating Glass-Steagall would mitigate the rapacity,” she concluded.
Marcus Stanley next addressed the question of how the Glass-Steagall repeal figured in the 2007-8 crash. While this crash was not the first banking crisis since the 1930s, he said, it was the first one since then which simultaneously impacted the commercial and investment banks, and the entire U.S. and world economies. It’s no coincidence that this crisis occurred so soon after the demise of Glass-Steagall, he said, because eliminating Glass-Steagall let the megabanks grow to create such a vulnerability.
Stanley then showed two graphics which dramatized the impact of the demise of Glass-Steagall, both of which stayed on the screen long enough to sink in. The first showed the growth of mortgage-backed securities, from $200 billion at the time of the repeal, to $1.3 trillion six years later. The second showed the growth and then crash of the ABS CDO markets (Asset-based Securities Collateralized Debt Obligation), which skyrocketed after the repeal, and ultimately lost a full 2/3 of their “value” with the crash.
Growth of Mortgage-backed Securities
Default Rate of Collateralized Debt Obligations
The chart shows the issuance of asset-backed securities/collateralized debt obligations in blue, and their default rate in red. (Americans for Financial Reform)
Of course, the impact of the crash was not only in finance. In response to Naylor’s question about the “human cost,” AFL-CIO representative Heather Slavkin cited the extensive loss of homes and of retirement savings, much of which had been wiped out. And while we are told the situation has gotten better, she said, people are still hurting. She particularly cited the fact that small businesses can’t get capital, because the banks are all concentrating on speculation.
Prins then had the opportunity to elaborate on the state of the banking sector. She stressed that such speculation was still going on, only under other acronyms, and has created multiple bubbles, including in the stock market (through corporations buying their own stock), in lending to major international corporations, and in real estate. These bubbles are showing indications they might pop, she added, so it’s critical to take precautions now.
Feeding into this speculative process, Naylor added, is the fact that partners in the big banks are now getting compensated with stock in the short term, rather than at the end of their careers. This has led to them replacing long-term greed, with short-term greed, and making investment decisions that will make money quickly, rather than over the long term.
The implementation of Dodd-Frank and the Volcker rule hasn’t stopped this process, Stanley said. While he considers the Volcker rule a “valuable step” toward re-regulation, he emphasized that the regulators still give the banks a lot of leeway, and he expects this to get worse in the Trump era. “We need Congress and the public to restore a clear firewall,” he concluded.
Panel Discussion: The Political Fight
Naylor then shifted the subject to the situation in Washington, which made the repeal of Glass-Steagall possible, and has stalled the necessary action to restore it. Slavkin first discussed the dominance of the bankers’ lobbyists on Capitol Hill. She noted how during the period the AFL-CIO lobbied for Dodd-Frank, they were told that Congressional offices would get 40 calls or visits from bank lobbyists, compared to one from a constituent. There is an “echo chamber of Wall Street voices” in D.C., she said, so your Congressman has to hear from you.
Stanley addressed the specific influence of Goldman Sachs in the Trump Administration, noting that Goldman vice-president Gary Cohn, who is now in charge of economic policy for the President, was key to the abuses which led to the 2008 crash. He was personally involved in devising and selling investments based on toxic securities.
Nomi Prins was then asked by Naylor to compare the current political situation around Glass-Steagall with that at the time of the Franklin Roosevelt Administration. The causes of the 1929 and 2008 crashes were similar, she said; the fraudulent instruments were just named differently. But the big difference then is that there were two leading bankers, Winthrop Aldrich of Chase Bank and James Perkins of National City, who were committed to banking separation. In fact, she said, Aldrich acted pre-emptively, before the passage of Glass-Steagall, to separate his commercial and investment banking divisions—and announced that measure on the front page of the New York Times!
Throughout the second part of the webinar, Naylor repeatedly reminded his audience of the number for reaching their Congressmen. He then asked the panelists to address the immediate organizing situation. Stanley described the current bills—H.R. 790, S. 881, and a specific companion to S. 881 (H.R. 2585)–noting that they all would do what Glass-Steagall did in the ‘30s. S. 881 also addresses some additional elements, like derivatives, he said. Slavkin spoke of the bipartisan support for Glass-Steagall. Makinde from Our Revolution added the importance of petition signatures and personal, handwritten letters to Congressmen, which have proved to be very effective. The Ohio Our Revolution group will be going back to Washington on Oct. 27, he said, and people should orient to that deadline. Prins stressed that this is a critical time, both of opportunity, and of necessity, since it will take restructuring the banking system to deal with another crisis.
In final comments, both Slavkin and Makinde noted that it was not only the economy that was at stake, but also American democracy itself. The point was echoed by the message on the screen that toolkits for organizing are available from the Our Revolution group in Northwest Ohio, which can be reached at slotnicks4@aol.com, or 419-704-1863.
Tags: Americans for Financial Reform, Bart Naylor, Glass-Steagall, Marcy Kaptur, Nomi Prins, Our Revolution, Public Citizen, Wall Street, Walter Jones