Thom Hartmann talks to Rep. Peter DeFazio about the effort by members of Congress to restore the Glass-Steagall Act.
http://www.thomhartmann.com Restore the Glass-Steagall Act The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) in the United States and provided a strong regulatory environment that largely served the nation and its banking sector well. The law separated commercial banks from investment banks by banning commercial banks from underwriting securities, forcing banks to choose between being a lender or an underwriter but not both. The law was finally repealed in 1999 during the Clinton Adminstration after 12 attempts in 25 years had weaken the provisions.
The law was effectively rendered obsolete when in December 1996, with the support of Fed Chairman Alan Greenspan, the Federal Reserve Board issued a precedent-shattering decision permitting bank holding companies to own investment bank affiliates with up to 25 percent of their business in securities underwriting. I had joined Alex. Brown & Sons, then the nation's oldest investment bank in August 1996. Less than a year later in April 1997, Bankers Trust, which in turn was acquired by Deutsche Bank, bought Alex. Brown becoming the first US bank to acquire a securities firm. The implications of the change were quite obvious. Suddenly what we did on the finance side could determine the placement of a commercial paper loan on the commercial side. The impact on the nation's banking sector has been an increased dependence on short-term gains over long-term planning.
I have had the good fortune and privilege to work at three investment banks including Goldman Sachs. Goldman is an exceptional firm and resource rich but at my core I remain a Alex. Brown guy and bleeding Alex. Brown red. One of the Four Horsemen of the US Investment Bank industry, Alex. Brown traced its roots to the Baltimore of 1800 when the firm started as trading and shipping firm. It grew into a banking concern financing canals and railroads. Alex. Brown underwrote the first initial public offering in the US, that of the Baltimore Water Company in 1808. We were the first East Coast bank to open an office in San Francisco and along the way we underwrote initial public offerings for companies from the B&O Railroad to Genentech to Krispy Kreme. A firm of some 7,000 employees world-wide, we were a niche player, highly profitable and committed to our clients. Engaging in high-risk speculation was not part of our business. Along with the venture capital industry, investment banking industry is effectively the nation's industrial policy setters. These are the industries that pick the winners, the companies to nurture and to grow into titans of industry. It is important to allow the sector to assume risk without subsuming commercial banks. Nor should the lending practices of commercial banks threaten the viability of investment banks. These two are indeed separate businesses and should be again separated in practice and by law.
The repeal of Glass-Steagall, however, has changed the culture in the nation's banking sector which underwent a period of consolidation under the mantra that bigger was better. In a 13 month period without changing desks, I had three separate employers. Combine that big is beautiful mentality along with the lack of derivative regulation plus the fear that a bank failure has long-standing fateful repercussions for the overall economy and you have the present day mess that we face. We could let a brokerage like Smith Barney or an investment bank Salomon Brothers fail but letting a financial behemoth Citibank fail is another matter. We have seen the end of moral hazard with bailout after bailout for the super-rich who keep on making speculative bets because they can and because ultimately they know that the public sector will bail them out when on the verge of collapse.
This week five House Democrats - Maurice Hinchey of New York, John Conyers of Michigan, Peter DeFazio of Oregon, Jay Inslee of Washington, and John Tierney of Massachusetts - will introduce an amendment that would give banks one year to choose between being commercial banks or investment banks. I support this amendment and believe it critical to the future success of the country because it will restore a balance within the finance industry letting commercial banks do what they do and investment banks do what they do.
http://www.mydd.com/story/2009/12/9/43410/1061http://videocafe.crooksandliars.com/heather/thom-hartmann-show-rep-peter-defazio-tryin
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