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Wall Street Haunted by Glass Steagall
16 November 2012
The specter of Glass Steagall landed at the annual Bloomberg LP FX12 (foreign-exchange) conference on Wall Street on Wednesday, which included a short panel on "Banking Under Fire: A look at the on-going debate about, whether or not, it is time to reinstate Glass-Steagall and break up Wall Street’s biggest banks. Which banks should be broken up and how? What are the risks?" Scant reports are available on the discussion, but the fact that the Wall Street confab chose to raise the issue is telling. Business Week reported the remarks of Commodity Futures Trading Commission member Bart Chilton under the wishful headline, "Volker Rule Should Prevent Glass-Steagall Return." Chilton reportedly said, "I don’t know if we need to go back to Glass-Steagall," and argued that the Volker Rule gets "pretty far" in curtailing risk. But he added that the rule-making process on Volker has been too slow, and its allowance for banks to continue activities that are considered hedging could be a "humongous loophole," opening the door for systemic risk. Remarks by fellow panelist Hal Scott, a Harvard Law School specialist on "international financial systems," were not reported, but in an interview the same day with Fox Business News, Scott objected to the Volker Rule as too restrictive on trading, because Wall Street is necessary for recovery. Another "market" voice raised the possibility of a return to Glass-Steagall: Institutional Investor published an article by Jeffrey Kutler, editor-in-chief of "Risk Professional" magazine, which promoted Bank of England Andrew Haldane’s arguments for simplicity in regulation, that, as Haldane argues, puts Glass-Steagall back on the international policy agenda. More forcefully, anti-Wall Street regulator Neil Barofsky made a case for Glass-Steagall now, in a Nov. 8 forum he addressed at Boston University. Debunking the Dodd-Frank fraud in "Barney Frank’s own backyard," as he put it, Barofsky warned that since the bailout turned the banks that were "Too Big to Fail" in 2008, into banks that are "Too Big to Jail," a greater financial crisis is likely. But there are things we can and must do, such as breaking up the large financial institutions, bringing back a "modified Glass-Steagall," imposing "size caps" (Brown Kaufmann Amendment to Dodd-Frank). He told the students emphatically: We should have no hope in the re-election of Obama. This administration is just as bad as the Bush administration, when it comes to Wall Street and the banks; they are not going to turn around and break up the banks now. The hope lies in the growing number of people now on board for a modified version of Glass- Steagall, and other measures. There is growing momentum behind this, he said, citing Vice Chairman of the FDIC Tom Hoenig, Sandy Weill (the "Dr. Frankenstein" of Wall Street), and a growing chorus of members of Congress and regulators. The "green shoots" in the election for me, he said, are that Senator Sherrod Brown and Senator-elect Elizabeth Warren were elected, despite all Wall Street did to stop them. |