Without Glass-Steagall America Will Fail
10, 2017 "Information
- For 66 years the Glass-Steagall act reduced
the risks in the banking system. Eight years
after the act was repealed, the banking system
blew up threatening the international economy.
US taxpayers were forced to come up with $750
billion dollars, a sum much larger than the
Pentagonís budget, in order to bail out the
banks. This huge sum was insufficient to do the
job. The Federal Reserve had to step in and
expand its balance sheet by $4 trillion in order
to protect the solvency of banks declared ďtoo
big to fail.Ē
enormous increase in the supply of dollars known
as Quantitative Easing inflated financial asset
prices instead of the consumer price index. This
rise in bond and stock prices is a major cause
of the worsening income and wealth distribution
in the United States. The economic polarization
has undercut the image and reality of the US as
a land of opportunity and has introduced
political and economic instability into the life
of the country.
are huge costs and for the benefit only of the
rich who were already rich.
what we can say about the repeal of
Glass-Steagall is that it turned a somewhat
egalitarian democracy with a large middle class
into the One Percent vs. the 99 percent. The
repeal resulted in the destruction of the image
of the United States as an open prosperous
society. The electorate is very much aware of
the decline in their economic situation, and
this awareness expressed itself in the last
Americans know that the nonsense from the US
Bureau of Labor Statistics about a 4.3%
unemploment rate and an abundance of new jobs is
fake news. The BLS gets the low rate of
unemployment by not counting the millions of
discouraged workers who cannot find employment.
If you havenít looked for a job in the last 4
weeks, you are not considered unemployed. The
birth/death model, a purely theoretical
construct, accounts for a large percentage of
the non-existent new jobs. The jobs are there by
assumption. The jobs are not really there.
Moreover, the replacement of full time jobs with
part time jobs proceeds. Pension and health care
benefits that once were a substantial part of
the pay package are being terminated.
makes perfect sense to separate commercial from
investment banking. The taxpayer insured
deposits of commercial banking should not serve
as backing for investment bankingís creation of
risky financial instruments, such as subprime
and other derivatives. The US government
understood that in 1933, but no longer did in
1999. This deterioration in government
competence has cost America dearly.
merging commercial banking with investment
banking, the repeal of Glass-Steagall greatly
increased the capability of the banking system
to create risky financial instruments for which
taxpayer backing was available. So, we have the
extraordinary situation that the repeal of
Glass-Steagall forced the 99 percent to bail out
the One Percent.
repeal of Glass-Steagall has turned the United
States into an unstable economic, political, and
social system. We have a situation in which
millions of Americans who have lost full time
employment with benefits to jobs offshoring,
whose lower income employment in part time and
contract employment leaves them no discretionary
income after payment of interest and fees to the
financial system (insurance on home and car,
health insurance, credit card interest, car
payment interest, student loan interest, home
mortgage interest, bank charges for insufficient
minimum balance, etc.), are on the hook for
bailing out financial institutions that make
foolish and risky investments.
not politically viable unless Congress and the
President are going to resign and turn over the
governance of America to Wall Street and the Big
Banks. A growing cresendo of voices are saying
that this has already happened.
where is there any democracy when the One
Percent can cover their losses at the expense of
the 99 Percent, which is what the repeal of
only must Glass-Steagall be restored, but also
the large banks must be reduced in size. That
any corporation is too big to fail is a
contradiction of the justification of
capitalism. Capitalismís justification is that
those corporations that misuse resources and
make losses go out of business, thus releasing
the misused resources to those who can use them
profitably. Capitalism is supposed to benefit
society, not be dependent on society to bail it
present when George Champion, former CEO and
Chairman of Chase Manhattan Bank testified
before the Senate Banking Committee against
national branch banking. Champion said that it
would result in the banks becoming too large and
that the branches would suck savings out of
local communities for investment in traded
financial assets. Consequently, local
communities would be faced with a dearth of
loanable funds, and local businesses would die
or not be born from lack of loanable funds.
covered the story for Business Week. But despite
the facts as laid out by the pre-eminent banker
of our time, the palms had been greased, and the
Assistant Secretary of the US Treasury in the
Reagan Administration, I opposed all financial
deregulation. Financial deregulation does
nothing but open the gates to fraud and sharp
dealing. It allows one institution, even one
individual, to make a fortune by wrecking the
lives of millions.
American public is not sufficiently
sophisticated to understand these matters, but
they know when they are hurting. Few in the
House and Senate are sufficiently sophisticated
to understand these matters, but they do know
that to understand them is not conducive to
having their palms greased. So how do the
elected representatives manage to represent
those who vote them into office?
answer is that they seldom do.
question before Congress today is whether they
will take the country down for the sake of
campaign contributions and cushy jobs if they
lose their seat, or will they take personal
risks in order to save the country.
cannot survive if excessive risks and financial
fraud can be bailed out by taxpayers.
Representatives Walter Jones and Marcy Kaptur
and members of the House and staff on both sides
of the aisle, along with former Goldman Sachs
executive Nomi Prins and leaders of citizensí
groups, have arranged a briefing in the House
of Representatives on June 14 about the
importance of Glass-Steagall to the economic,
political, and social stability of the United
States. Let your representative know that you
do not want the financial responsibility for the
reckless financial practices of the big banks.
Let your representative know also that you do
not want big banks that dominate the financial
arena. Let them know that you want the return of
effort to reduce the financial risks arising
from the commingling of commercial and
investment banking by requiring stronger capital
positions of financial corporations is futile.
The 2007-08 financial crisis required the
taxpayers and the printing press and an amount
of money that exceeded any realistic capital and
liquidity requirements for financial
donít re-enact Glass-Steagall, the risks taken
by financial greed will complete the economic
destruction of America.
Congress must serve the people, not Mammon.
Paul Craig Roberts was Assistant Secretary of
the Treasury for Economic Policy and associate
editor of the Wall Street Journal. He was
columnist for Business Week, Scripps Howard News
Service, and Creators Syndicate. He has had many
university appointments. His internet columns
have attracted a worldwide following. Roberts'
latest books are
The Failure of Laissez Faire
Capitalism and Economic Dissolution of the West,
How America Was Lost,
The Neoconservative Threat to
views expressed in this article are solely those
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