Robert Reich asks in response to one of her economic advisors.
Hillary Clinton won’t propose reinstating a bank break-up law known as the Glass-Steagall Act – at least according to Alan Blinder, an economist who has been advising Clinton’s campaign. "You’re not going to see Glass-Steagall," Blinder said after her economic speech Monday in which she failed to mention it. Blinder said he had spoken to Clinton directly about Glass-Steagall.
That act from the 30s put a firewall between bank depositors and risky trading. Those living through the Great Depression understood what had to be done to prevent another 1929-style crash.
After the entire stock market crashed in 1929, ushering in the Great Depression, Washington needed to restore the public’s faith in the banking system. One step was for Congress to enact legislation insuring commercial deposits against bank losses.
Another was to prevent the kinds of conflicts of interest that resulted in such losses, and which had fueled the boom and subsequent bust. Under the Glass-Steagall Act of 1933, banks couldn’t both gamble in the market and also take in deposits and make loans. They’d have to choose between the two.
So why won't Hillary get on board with a renewal of Glass-Steagall? She can't think that Elizabeth Warren is any longer any kind of contender for the Dem nomination.
"The idea is pretty simple behind this one," Senator Elizabeth Warren said a few days ago, explaining her bill to resurrect Glass-Steagall. "If banks want to engage in high-risk trading — they can go for it, but they can’t get access to ensured deposits and put the taxpayers on the hook for that reason."
So the question remains. And raises another: what's down-side risk to Hillary's candidacy for supporting Warren's bill? Is she worried about pissing off Wall Street? She ought to be worried about pissing off people who lost during the second great calamity that followed the dumping of Glass-Steagall.
[Hillary's position is] a mistake politically because people who believe Hillary Clinton is still too close to Wall Street will not be reassured by her position on Glass-Steagall. Many will recall that her husband led the way to repealing Glass Steagall in 1999 at the request of the big Wall Street banks.
It’s a big mistake economically because the repeal of Glass-Steagall led directly to the 2008 Wall Street crash, and without it we’re in danger of another one.
As George Santayana famously quipped, those who cannot remember the past are condemned to repeat it. In the roaring 2000’s, just as in the Roaring Twenties, America’s big banks used insured deposits to underwrite their gambling in private securities, and then dump the securities on their customers.
It ended badly.
This is precisely what the Glass-Steagall Act was designed to prevent – and did prevent for more than six decades.
Hillary Clinton, of all people, should remember.
And there might be the reason. Could it be because Bill Clinton signed off on its repeal?
A personal note: Byron Dorgan, then Senator from my home state of North Dakota, voted against the Bill Clinton/Phil Gramm repeal. Dorgan was right. The Clintons were/are wrong.