The Glass-Steagall Act

Pam Martens, whom I quoted extensively about the cozy relationships between Wall Street firms and the Obama campaign at the end of my post A Case Against Obama Nation, published an article at CounterPunch, Senator Dodd, Put Back That Wall! The Most Vital Ingredient in Wall Street Reform Goes Missing , in which she analyzes the sorry state of financial reform legislation coming out of the Senate Banking Committee, chaired by Christopher Dodd. She laments the text of the Glass-Steagall Act was hard to find, and her attempts to obtain a copy from the National Archives were answered only by a request for a copying fee of $35 per page. They would send her the first and signature pages, but the remaining 43 pages are apparently caught up in “the new reality of wealth, privilege and access in America.”

However, she remembered where she had found other documents dating from the Great Depression and was able to download it. She was reluctant to post the link, but will send it to anyone who sends her an email at

I copied it from the site and will be happy to email the Act to anyone who sends me an email with the subject line, “Save Glass-Steagall From Extinction.” (I hesitate to give out the web location for fear the repository that has given the legislation a home will suffer a buyout by Wall Street shortly upon the news leaking out. I say this only half jokingly.)

The document is a protected PDF, so I cannot post the text, but I have uploaded it so it can be accessed here. The wall between commercial and investment banks enforced by that Act was troublesome to the banking industry, so they worked through their stooges in the Clinton Administration to get it repealed. Specifically, if that law had remained in force, the merger between Citibank and Travelers Insurance would be illegal, though the Federal Reserve ignored that, approving the merger over a year before the repeal. In another article published a week later, The Guys Who Got It Wrong: Obama’s Economic Brain Trust Ms. Martens explains how this all came down:

This is what Mr. Summers had to say at the November 12, 1999 signing ceremony for the Gramm-Leach-Bliley Act, the draconian legislation that repealed the Glass-Steagall Act and allowed commercial banks holding insured deposits to merge with investment banks, brokerage firms and insurance companies: the very same combinations that led to the 1929 stock market crash and ensuing Great Depression:

Let me welcome you all here today for the signing of this historic legislation. With this bill, the American financial system takes a major step forward towards the 21st century, one that will benefit American consumers, business, and the national economy for many years to come…I believe we have all found the right framework for America’s future financial system.

Mr. Summers was wrong. This was not the “framework for America’s future” but the framework for epic financial collapse. Why isn’t Mr. Summers in an unemployment line along with the millions of Americans his bad judgment call put out of work.

Then there is Neal Wolin, confirmed by President Obama as Deputy Secretary of the Treasury on May 19, 2009. Writing in the San Francisco Chronicle on November 19, 2009, Robert Scheer had this to say about Wolin:

Wolin, Geithner and Summers were all proteges of Robert Rubin, who, as Clinton’s treasury secretary, was the grand author of the strategy of freeing Wall Street firms from their Depression-era constraints. It was Wolin who, at Rubin’s behest, became a key force in drafting the Gramm-Leach-Bliley Act, which ended the barrier between investment and commercial banks and insurance companies, thus permitting the new financial behemoths to become too big to fail. Two stunning examples of such giants that had to be rescued with public funds are Citigroup bank, where Rubin went to ‘earn’ $120 million after leaving the Clinton White House, and the Hartford Insurance Co., where Wolin landed after he left Treasury.

Rounding out the list of those who got it wrong in the Clinton administration who have been brought back to get it wrong again in the Obama administration: Gary Gensler, one of those supporting the de-regulation of derivatives under Clinton, now head of the Commodity Futures Trading Commission under President Obama; Gene Sperling, thanked by Lawrence Summers in the opening remarks at the signing of the legislation to repeal the Glass-Steagall Act, now counselor to Treasury Secretary Tim Geithner; and, of course, Geithner himself, former President of the Federal Reserve Bank of New York who served under Robert Rubin and Lawrence Summers in Clinton’s Treasury Department from 1999 to 2001.

Ms. Martens concludes,

If financial behemoths collapse from hubris and corruption and lack of meritocracy, why wouldn’t government administrations do the same? President Obama needs to sack the financial wizards who got it wrong and add the common sense folks who got it right.

I think she knows better than most that Obama is unlikely to take that to heart. This all goes to show, Democrats are not serious about financial reform, no more so than they are about health care reform, women’s rights, constitutional rights, or the environment. They are more skillful at pretending they care about these things than Republicans, but actions speak louder than words. It stands to reason that any corporation that becomes “too big to fail” has too much power and influence, and is therefore not just a threat to the financial system, but to democracy itself. This is one reason corporations used to be kept under a tight leash. Power corrupts, and another name for a corporate state is fascism. In light of the recent Supreme Court decision opening the door for corporations to flood politics with unlimited cash in the name of free speech, a fascist corporate state is closer to reality than ever. Is this a democracy in name only? Perhaps when the Obama bubble bursts, there will be more than this halfhearted attempt at financial reform, but as long as the illusion of economic recovery persists, it is business as usual.

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