Glass-Steagall, Take 2 (Jan. 13)

Mike & Co. —

Spoiler alert that the update below is another (requested) look at financial regulatory debate.  It might not seem like territory as friendly as, say, gun control and it’s close the Vermont Senator’s home turf of economic inequality but his advantage can be neutralized. 

Back to taxes tomorrow. 

 Best,

Dana

———-

The tangle in the Democratic primary over financial regulation ran over into a second week this week.  It is not quite a tangle on a specific issue between the two leading candidates as much as a proxy struggle between the campaigns and the commentariat, both trying to put the debate into the larger perspective of broad policy questions and themes.

The candidates’ recent exchanges haven’t grappled fully with the issues at contest while allowing Sen. Sanders to continue focusing on his so-far successful populist rhetoric.   His advantage here is bound to erode if the debate becomes any more substantive for a variety of reasons.

Glass-Steagall

The US Banking Act of 1933, better known as Glass-Steagall, has been near the center of economic political discussions for decades.  The act was introduced in 1933 to separate the activities of commercial and investment banking, elemental in the New Deal effort to end one Great Depression and prevent others.    By the 1960s, the lines started blurring between commercial and investment banking activities as regulators began to allow commercial banks to undertake more securities activities.  There were so many allowances that many believe the Act was de facto dead by the time it was repealed in 1999.

The substantive policy issue most in contention is the centrality of the 1999 repeal of the Act to the recession.  This is a fine place for it if you are looking for ways to trip a candidate up on the arcane business of commercial bank functions, their relatively incidental role in the recession, and the limits of Glass-Steagall (a vulnerability of his which I will happily expand upon in an update for those interested in the policy blow-by-blow).

Political Viability

The Sanders’ plan hinges on passing a new Glass-Steagall Act to permanently separate commercial and investment banking and then, importantly, breaking up the largest banks (he includes non-banks like AIG and Bear Sterns in this)within one year of taking office.

What’s the professional commentary on Sanders’ plan to use Dodd-Frank section 121 to break up banks within one year?  One neutral analyst:  “unrealistic … since you would probably need to replace Janet Yellen with someone who’s on board with this project, and her term won’t expire until early 2018.”

These considerations overshadow for the moment the practical political reality that most of the specific proposals being debated are unlikely to gain traction in the next Congress given the near certainty that the GOP will retain control of the House.

But there is plenty at stake here and HRC has won probably the most important vote in this still muted and recondite debate. Barney Frank:  “There was this inaccurate argument out there that she’s been weak on the subject… I don’t know what that’s based on, other than the fact she represented New York.”  Getting Barney Frank’s support is big and should be more ballyhooed.  But getting a small and ready stable of media savvy and intellectually able validators is not always easy.

The majority of rank-and-file Democratic primary voters may appreciate Sen. Sanders’ obvious sincerity and passion on the issue.  He is relying on it; it is perhaps the central issue of his campaign.  But HRC’s approach to regulation is no less thoughtful, certainly more detailed, and probably more systemically sound.  Moreover, it matters to voters who will have to work with at least half a Republican Congress.  And the Clinton plan is at least more viable than that of Sen. Sanders.

Neutralizing the Advantage

Not that creating a roadmap of guaranteed legislative victories is HRC’s plan.  The plan instead is to have a creditable rejoinder to Sen. Sanders’ financial reform  proposals and to do so with ideas that blunt the semi-informed populist rhetoric and win the support of progressives and independents.  And to do it systemically — HRC’s dozens of proposals focus on be priorities for improvement and reach into every corner of the sector.

Sen. Sanders believes that the main cause of the financial crisis was the lack of Glass-Steagall, that had Glass-Steagall still been in place, the crisis would not have occurred.  This minority perspective is subject to challenge.  Few economic crises are the result of one single factor.  Even Sen. Elizabeth Warren agrees that the crisis probably could not have been avoided if Glass-Steagall had been in place.  Prevailing opinion even within the progressive commentariat agrees.  And In any event, the view disregards the large role that “shadow banking” had in causing the crisis independent of the depository banks.

Pressing the Advantage

The New York Fed says that “[shadow] banking activities consist of credit, maturity, and liquidity transformation that take place without direct and explicit access to public sources” of liquidity and credit backstops — the Federal Reserve’s discount window and the FDIC’s insurance on bank deposits.  The shadow banks take greater risks than their traditional counterparts, and they’re doing so with no public protections.  This was true during the Glass-Steagall era as well.

Analysts of all stripes worry that that breaking up the largest banks or even passing a new Glass-Steagall Act would simply cause these activities to migrate elsewhere.  After all, shadow banking arose during the time of the first Glass-Steagall, what’s to stop it from surviving the advent of its successor?   Meanwhile, adding or tightening margin requirements on short-term “repo” lending, leverage requirements on broker-dealers, transparency on hedge funds, and revisiting the money market fund industry are the repairs to the sector’s critical inter-institutional links needed to secure it.

Voters are legitimately concerned about the security of their jobs and future taxpayer-supported bailouts.  If the debate’s focus shifts from resurrecting a long-dead Act to finding new, innovative and systemic solutions instead, and it is connected directly with anger about Wall Street bailouts or middle-class fears about being ripped off by the system, the ideas will resonate more deeply.  The new proposed provisions of Dodd-Frank work better for modern banking and the modern economy than the ideas presented in Glass-Steagall over 80 years ago.

 

 

41 thoughts on “Glass-Steagall, Take 2 (Jan. 13)”

  1. My wife and i were so relieved when Peter managed to finish up his studies via the precious recommendations he received when using the web site. It is now and again perplexing to simply happen to be offering things which often some people might have been trying to sell. We remember we now have you to thank for this. These illustrations you made, the straightforward website navigation, the relationships your site make it easier to promote – it is mostly superb, and it is letting our son in addition to us recognize that this theme is pleasurable, which is certainly truly serious. Thanks for the whole thing!

  2. I am also commenting to let you know of the helpful encounter my friend’s daughter found reading through your web page. She figured out numerous issues, not to mention what it’s like to have an amazing giving mood to have most people really easily know selected impossible subject areas. You really exceeded our own expectations. Many thanks for imparting the interesting, safe, explanatory and even easy thoughts on the topic to Janet.

  3. Hi there! I know this is kinda off topic nevertheless I’d figured I’d ask.
    Would you be interested in trading links or maybe guest
    writing a blog post or vice-versa? My blog covers a lot of
    the same topics as yours and I feel we could greatly benefit from each other.

    If you’re interested feel free to shoot me an e-mail.
    I look forward to hearing from you! Terrific blog by the way!

  4. Hi there! This is my first visit to your blog! We are a collection of volunteers and
    starting a new project in a community in the same niche.
    Your blog provided us beneficial information to work on. You have done a
    extraordinary job!

    Here is my site … CBD for sale

  5. Hi there, i read your blog from time to time and i own a similar
    one and i was just curious if you get a lot of spam
    remarks? If so how do you protect against it, any plugin or anything you can advise?
    I get so much lately it’s driving me mad so any assistance is
    very much appreciated.

  6. Hello! I could have sworn I’ve been to this website before but
    after checking through some of the post I realized it’s new to me.
    Anyhow, I’m definitely glad I found it and I’ll be book-marking and checking
    back often!

  7. Write more, thats all I have to say. Literally, it seems as though you relied on the video to make your point.
    You obviously know what youre talking about, why waste your intelligence on just posting videos to your blog when you could be giving us
    something enlightening to read?

    Feel free to surf to my web blog … CBD gummies for sale

  8. Excellent post. I was checking continuously this weblog and I am impressed!
    Very helpful info specially the last part 🙂 I maintain such
    information a lot. I was seeking this particular info for a long time.
    Thanks and best of luck.

    my website: best delta 8 thc

  9. I’m truly enjoying the design and layout of your blog.

    It’s a very easy on the eyes which makes it much
    more enjoyable for me to come here and visit more often. Did you hire out a designer to create your theme?
    Exceptional work!

    Here is my blog post: delta 8

  10. Hi there mates, how is all, and what you would like to say concerning this piece of writing, in my view its actually
    amazing in support of me. asmr 0mniartist

  11. Hello, I think your blog might be having browser compatibility issues.
    When I look at your website in Firefox, it looks fine but when opening in Internet Explorer, it has some overlapping.
    I just wanted to give you a quick heads up!
    Other then that, terrific blog!

    Here is my web-site :: best CBD gummies

  12. We stumbled over here coming from a different web
    page and thought I might as well check things out.
    I like what I see so now i am following you.
    Look forward to looking into your web page repeatedly.

    my homepage gold bee

  13. Post writing is also a excitement, if you be familiar with after that you can write or else it is difficult
    to write. 0mniartist asmr

  14. Hey there, I think your website might be having browser
    compatibility issues. When I look at your website in Chrome,
    it looks fine but when opening in Internet Explorer, it has some overlapping.
    I just wanted to give you a quick heads up! Other then that,
    terrific blog! asmr 0mniartist

  15. I do not even know how I ended up here, but I thought this post was good.
    I do not know who you are but certainly you’re going to a famous blogger if
    you aren’t already 😉 Cheers!

    Feel free to surf to my website :: delta 8 carts

  16. Hello there! I know this is somewhat off topic but I was wondering which blog platform are you
    using for this site? I’m getting fed up of WordPress because I’ve had issues with hackers and I’m looking at
    options for another platform. I would be awesome if you could point me
    in the direction of a good platform.

    My site: Area 52 Delta 8 THC

  17. Thank you for another informative website. The place else may I get that kind of info written in such a perfect approach?
    I’ve a mission that I’m simply now operating on, and
    I have been on the glance out for such information.

  18. I have been exploring for a little bit for any high-quality articles
    or blog posts in this sort of area . Exploring in Yahoo I
    at last stumbled upon this site. Studying this info So i am glad to exhibit that I
    have an incredibly excellent uncanny feeling I found out just what I needed.
    I so much without a doubt will make certain to do not fail to remember this website and provides it a look on a continuing basis.

  19. Hi there i am kavin, its my first time to commenting anywhere, when i
    read this article i thought i could also make comment due to this brilliant
    piece of writing.

  20. Howdy would you mind letting me know which webhost you’re working with?
    I’ve loaded your blog in 3 different browsers and I must say
    this blog loads a lot quicker then most. Can you recommend a
    good hosting provider at a honest price? Thanks, I appreciate it!

    my web site: best delta 8

  21. Thank you for the good writeup. It in truth was a enjoyment
    account it. Look advanced to far added agreeable from you!
    By the way, how could we keep up a correspondence?

  22. Write more, thats all I have to say. Literally, it seems as
    though you relied on the video to make your point. You obviously
    know what youre talking about, why waste your intelligence on just
    posting videos to your weblog when you could be giving us something enlightening
    to read?

  23. Right here is the perfect web site for everyone who hopes to understand this topic.
    You realize so much its almost hard to argue with you (not that I actually would want to…HaHa).
    You definitely put a brand new spin on a topic which
    has been written about for ages. Great stuff, just wonderful!

  24. Spot on with this write-up, I truly feel this site needs much more attention. I’ll probably be returning to
    see more, thanks for the info!

  25. Thank you for the good writeup. It actually used to be a
    entertainment account it. Glance complicated to far brought agreeable from you!

    By the way, how could we communicate?

Leave a Comment

Your email address will not be published. Required fields are marked *