Massachusetts’ Senator Elizabeth Warren has called on her progressive supporters to remain steadfast in maintaining Dodd-Frank banking regulations and to resuscitate the Glass-Steagall Act, which would split up large banking conglomerates.
In a speech delivered to mark the 5-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Warren specified Glass-Steagall’s repeal was a significant factor which led to the economic dislocation in 2008.
“That high wall between high-risk trading and boring banking was punched full of holes until in the late 1990s, it was knocked down when Glass-Steagall was eventually repealed,” she said. “And not long after that, the worst crash since the 1930s hit the American economy.”
“The idea is pretty simple behind this one: 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.”
Warren’s comments came a day after a spokesperson for Hillary Clinton said the Democratic frontrunner has no plans to restore Glass-Steagall.
The GOP has stated Dodd-Frank is oppressive legislation, hobbles economic growth and has a disparate effect on mid-and-small banking institutions which played no role in the crash of 2008.
Writing regulatory law is not a precise art.
Glass-Steagall was enacted as a provision of the Banking Act of 1933 in the wake of the Wall Street Crash of 1929. Designed to prohibit speculative activities between commercial and investment banks, several key provisions were repealed in 1999 with the passage of the Gramm-Leach-Bliley Act (GLB Act) and was signed into law by Bill Clinton. The GLB Act removed prohibitions from one financial institution from acting as an insurance brokerage firm, commercial bank or security firm and could represent all financial sectors.
While the Glass-Steagall Act prevented risky financial transactions, Warren is missing the mark: She fails to recognize poorly written laws and ambiguous interpretation of existing laws are problematic and crafty and unscrupulous speculators are the real villains.
While few dispute the provision’s repeal was the taproot of the problem, and exceptionally contributed to the crisis of 2008, a blanket law imposing top-down regulation on an entire industry to its enfeeblement are uncalled for. While critical evaluation and review is necessary to implement regulation where needed, Warren comes off as shallow and doctrinaire while assailing Wall Street.
Warren deserves applause for her spirited defense of the innocent casualties whose livelihood is at risk; however, introducing policing at every level of a vital sector, the banking industry, is an ill-advised undertaking.