The Fight to Restore Glass-Steagall
June 12–Efforts to revive the American System today are being led by the campaign to reinstate FDR’s Glass-Steagall law. The LaRouche Political Action Committee began to agitate for this measure in the fall of 2008, and by 2010 the drive had become an active issue in the U.S. Congress, at that time led by Senator Maria Cantwell (D-WA). In subsequent years, Cantwell was joined in the Senate by Elizabeth Warren (D-MA), John McCain (R-AZ), and Angus King (I-ME), and in the House by Rep. Marcy Kaptur (D-OH). In the last session of Congress, over 80 Congressmen and 10 Senators had signed onto legislation to reinstate Glass-Steagall.
At the same time, the call for reviving the separation of commercial from speculative banking has been taken up by state legislators around the country, who have introduced Memorials to Congress and the President urging immediate action. So far in 2017, there have been Memorials introduced in 17 states; in previous years, the numbers have gone as high as 25 states, and resolutions for Glass-Steagall were actually passed in several of them.
The prospects for the reinstatement of Glass-Steagall have been heightened by the fact that both the Democratic and Republican Party platforms for the 2016 Presidential elections endorsed its reinstatement, and President Donald Trump has several times indicated that he is looking seriously at the possibility of reinstating it.
For the current fight, I have assembled here the current legislation in Congress, and the resolutions and petitions which have been introduced, or are pending, during 2017.
First, here is FDR’s original Glass-Steagall bill, signed into law June 16, 1933: Glass-Steagall: “An Act to provide for the safer and more effective use of the assets of banks to regulate interbank control, to prevent the undue diversion of funds into speculative operations.”
House Resolution 790, introduced Feb. 1, 2017, by Rep. Marcy Kaptur. Text and sponsors can be found here.
House Resolution 2585, introduced May 22, 2017 by Rep. Michael Capuano (D-MA). Text and sponsors can be found here.
Senate bill S881,text and sponsors introduced April 6, 2017 by Sen. Elizabeth Warren.
Crucial Facts about Glass-Steagall
1. The bipartisan 37-page law signed June 16, 1933 by President Franklin Roosevelt, was actively promoted by some powerful Wall Street bankers, following the Crash of 1929 during the Great Depression. Throughout its 66 years as law, it prevented systemic banking collapse.
2. Glass-Steagall included the following provisions:
* It created the Federal Deposit Insurance Corporation, to insure citizens’ deposits.
* It prohibited commercial banks that take deposits and make loans, from speculating with depositors’ money.
* It mandated that investment banking (selling stocks, underwriting stocks and bonds, etc.) be separated into an entirely different bank from commercial banking, with no common boards of directors, shared deposits, etc.
* It permitted banks to purchase securities for their clients, but not for their account (i.e. proprietary trading, the subject of the Volcker Rule) reducing even the appearance of betting.
3. The timeline of the dismantlement:
* 1980s–the wall between investment and commercial banking began to be dismantled:
* In 1987, Fed Chairman Alan Greenspan allowed Bank Holding Company subsidiaries to deal in derivatives.
* In 1999 Glass Steagall was repealed. Too Big to Fail Banks (still too complex) were the result.
* In 2000, Congress passed the Commodities Futures Modernization Act, deregulating derivatives.
4. Following Glass-Steagall’s repeal, investment banks competed with TBTF banks, which financed their speculative dealings, by increasing leverage. Both collapsed in 2008; TBTF banks remain subsidized.
5. The system began to crash when Citigroup’s toxic financial paper tanked in the Fall of 2007. The myth is that the crash was caused by the implosion of investment banks which are not covered by Glass Steagall. THIS IS A LIE. Citigroup ultimately received $45 billion in taxpayer bailout, $340 billion in asset guarantees, and $2 trillion in near-zero percent Federal Reserve loans.
Federal Reserve Chair Bernanke testified in 2009 at the Financial Crisis Inquiry Commission that “by October 2008, 12 of the 13 most important banks were “at risk of immediate failure,” and were bailed out.
6. Today the U.S. banking system has $255 trillion in derivatives on the books of federally insured banks. A new bubble is the $14 trillion corporate debt, larger than the subprime mortgage bubble of 2007. Debt-to-Earnings ratios are at near record highs; corporate defaults are building to 2009 levels.
7. With Glass-Steagall restrictions removed, the banking system has heavily consolidated, eliminating hundreds of smaller banks, and “investment” has been increasingly restricted to speculation, including banks buying their own stock. The re-imposition of Glass-Steagall separation of commercial and investment banking, would again encourage commercial banks to invest in the real economy, as that would be the only way they could make their profits. Meanwhile, the investment banks would get no support from the government for their risky securities. Many would fail, as they would deserve to do.
2017 State Legislative Memorials for Glass-Steagall