Banks and Brokerages
With the fall of finance, Wall Street, and the global economy, there were many calls to not only fix the problem but to figure out the root of the causes. President Obama heard the calls and formed the Economic Recovery Advisory Board when he came into office early 2009. He appointed former Federal Reserve Chairman Paul Volcker, a man widely known and respected, as the chair of the board.
It seems, as of late, that Mr. Volcker’s suggestions have been ignored by the administration that called on him to save the country from the closest we have been to economic wreckage since the Great Depression. Why, you may ask, are they ignoring a prominent economist and knowledegable expert? Volcker has been suggesting bringing back a modern form of the 1933 Glass-Steagall Act that was passed during the Great Depression. Its provisions included the prohibition of bank holding companies from owning financial companies, presumably those involved with stocks and other derivatives. The Glass-Steagall Act was effectively repealed in 1999 by the Gramm-Leach-Bliley Act, allowing banks and brokerages to combine and reap tremendous profits at the expense of the average citizen. Of course, most big banks are completely against such an action (how can they make those fat profits they’re starting to make again?). The banking lobby is calling it an antiquated law that would be ineffective in today’s climate and consequently make America much less competitive on a global scale. Volcker, understanding these criticisms, retorted:
“People say I’m old-fashioned and banks can no longer be separated from nonbank activity…That argument,” he added ruefully, “brought us to where we are today.”
Economist and Nobel laureate Joseph E. Stiglitz has echoed the same sentiments as Volcker but fully cognizant that the former Fed Chairman is “embarked on a quixotic journey.” Former Citigroup CEO John S. Reed has joined the small chorus of Glass-Steagall-ites and has endorsed the same proposal saying it would “go a long way toward building a more robust financial sector.”
I agree with these men in saying that banking activities should be completely separate from other financial activities. Unless President Obama’s new proposal has better guidelines for these banks, what’s to stop them from repeating their actions with a resulting taxpayer-funded bailout? Limiting executive pay? That’s almost a laughable offense if they weren’t serious. Maybe the new “Too Big to Fail” bill will reveal the insights to which way the administration and Congress are planning to deal with the current crisis.