Yesterday in Washington, U.S. Senators John McCain and Maria Cantwell proposed reinstating the Glass-Steagall Act that split commercial and investment banking, as a way to rein in Wall Street firms in response to the financial crises.
McCain said at a D.C. news conference that, Under our proposal, too-big-to-fail banks would be forced to return to the business of conventional banking, leaving the task of risk taking or management to others."
The 1933 law was repealed a decade ago by the Gramm-Leach-Billey Act, that led banks like JP Morgan Chase & Bank of American to become active in retail banking, insurance and proprietary trading. Similar legislation was introduced in the House as well.
One of the big supporters of such legislation was former Florida GOP Congressman and now gubernatorial candidate Bill McCollum, who yesterday went after his potential Democratic challenger, Alex Sink, accusing her of "deceptive lending practices" while she worked at BofA in the 1990's.
The Miami Herald reports that at a fundraiser in Tampa Wednesday he backed off a bit on that charge, saying
`I'm sure she was a good banker, but she was president of now the largest bank we have a problem with in the state, back when at a time when some of this was just beginning to appear,'' said McCollum, the state's attorney general.
``Can I say that she had a hands-on role? I don't know, but I do know she was president then and I know today my office has more problems with mortgages that are not working right with Bank of America than any other.''
Sink was President of the Florida branch of Bank of America from 1993 to 2000.
It's hardly 20-20 hindsite to say that the elimination of Glass-Steagall rules helped lead to the financial crises.
A story from the New York Times in November of 1999 reported:
The decision to repeal the Glass-Steagall Act of 1933 provoked dire warnings from a handful of dissenters that the deregulation of Wall Street would someday wreak havoc on the nation's financial system. The original idea behind Glass-Steagall was that separation between bankers and brokers would reduce the potential conflicts of interest that were thought to have contributed to the speculative stock frenzy before the Depression.
In fairness to McCollum, he was hardly the only legislator who thought it was a good idea at the time. Larry Summers, Treasury Secretary for Bill Clinton at the time and now a major player in the Obama administration, said in the same article, "this historic legislation will better enable American companies to compete in the new economy.''
However, Summers isn't the gubernatorial candidate blasting Alex Sink for what she did with Bank of America in the 90's. I think if McCollum is to continue down that road, Ms. Sink wouldn't mind a bit.
Meanwhile, back in Washington, the House companion to McCain and Cantwell's legislation is being sponsored by New York's Maurice Hinchey, who wrote yesterday in the Huffington Post that:
The repeal of Glass-Steagall has exposed the U.S. economy to a level of risk that is simply unacceptable. This bill reinstates an important protection that will help ensure average Americans are not taken advantage of by banks and help mitigate the risk of another financial meltdown like the one from which we're still recovering.
Today, just four huge financial institutions hold half the mortgages in America, issue nearly two-thirds of credit cards, and control about 40 percent of all bank deposits in the U.S. In addition, the face value of over-the-counter derivatives at commercial banks has grown to $290 trillion, 95 percent of which are held at just five financial institutions. We cannot allow the security of the American economy to rest in the hands of so few institutions.
When you take a look at history and see the situation in which we find ourselves today, it is clear that we need to bring back the Glass-Steagall Act.
Congressional and financial "experts" are downplaying the calls to repeal the decade old legislation, but with the level of anger at Congress and the Banking industry, I wouldn't be so sure. Not when an NBC News/WSJ poll shows the Tea Party movement more popular right now than either the Democratic or Republican parties.