The worst possible outcome of our current financial mess is to end up with the exact same financial institutions that we started out with.
Obama's response to a question about Glass-Steagall in an interview he gave to the NYT last week didn't make me feel too confident:
"You know, I've looked at the evidence so far that indicates that other countries that have not seen some of the problems in their financial markets that we have nevertheless don't separate between investment banks and commercial banks, for example. They have a "supermarket" model that they've got strong regulation of."
So in other words, we'll have the same monster financial institutions around our necks at the end of this crisis that we had at the beginning -- minus the trillions coming out of our pockets either as unwilling taxpayers or consumers.
Robert Kuttner urges us to bring back the Pecora Commission:
Pecora's work led to several resignations of bank executives, but more importantly [it] created a climate for reform legislation. Pecora's findings helped inform the Glass Steagall Act of 1933 separating investment banking from government-insured commercial banking, the Securities Act of 1933 and the Securities Exchange Act of 1934. Most importantly, it functioned as a public shaming of Wall Street. It thus helped change the political climate so that radical reforms could proceed....
Defenders of the current regime treat with contempt any attempt to bring honesty back to the system. 'Glass-Steagall was already outdated in the Eighties', you'll hear them say. 'Such restrictions have no place in modern banking.'
Of course, these were the same arguments that were used in the attempt to stymie the original regulations in the 1930s. It's not like the bankers of that earlier period accepted these restrictions with open arms. In fact they opposed them tooth and nail though the regulations, once established, served us well over the decades until removed in the reckless Eighties and Nineties.
At that point Jamie Galbraith reminds us, "it took less than a decade to reproduce all the pathologies that Glass-Steagall had been enacted to deal with in 1933."
