Restoring Glass-Steagall

Granted, it took a multi-year lobbying effort and the expenditure of many millions of dollar to subvert a national regulatory and political process to overturn it, largely led by Sandy Weill of Citigroup. Frontline: The Long Demise of Glass-Steagall.

And with the return of the Clinton crowd as Obama’s key financial advisers, led by Larry Summers and young Tim, supplemented by more mercenaries from the-investment-bank-that-must-not-be-named, perhaps it is unreasonable to expect the Reformer to enact such a simple, time-tested reform.

Perhaps Barney Frank and Chris Dodd can bring the Princes of Wall Street down to Washington again, profusely thank them for taking time from their busy day to speak to the people’s representatives, privately thank them for their generous campaign contributions, and simply ask them what they will accept as regulation again.

It is important to bear this in mind, because it tends to knock down the assertion that the current financial crisis is somehow an act of God, something that just happened. There was an intent to subvert the regulatory process, to increase leverage beyond what has long been known to be prudent, and to engage in systemic fraud with a group of enables and agencies, such as the ratings firms, in order to reap fabulous personal profits for a small group at the expense of the many. There was planning, premeditation, malice aforethought. They may not have intended to harm; they just did not care. They really truly did not care, if they got theirs.

Until the banks are restrained, and the financial system reform, and balance restored to the economy, there will be no sustained recovery.

And there can be no better start than to stop the gambling with the public money that is the core of the existing US banking system. The parallels with organized crime and the subversion of the public interest through graft and corruption are compelling. And one thing we must accept is that the financiers will never be able to reform themselves, to regulate themselves, to even tell the truth overmuch about regulation while they are still ‘in the game.’ It goes against their very nature, their creed, the rules of their profession. They keep what they kill, and everything that is not theirs is fair game.

How bad does it have to get in the US before the people finally speak out? Wait and see, because it will be getting worse, a lot worse than you might imagine. And each day of delay adds a pound of misery for your children and grandchildren to carry. Do you really think so little of them?

Volcker’s Advice

NY Times
October 22, 2009

To the Editor:

Re “Volcker’s Voice, Often Heeded, Fails to Sell a Bank Strategy” (front page, Oct. 21):

As another older banker and one who has experienced both the pre- and
post-Glass-Steagall world, I would agree with Paul A. Volcker (and also Mervyn
King, governor of the Bank of England) that some kind of separation between
institutions that deal primarily in the capital markets and those involved in
more traditional deposit-taking and working-capital finance makes sense.

This, in conjunction with more demanding capital requirements,
would go a long way toward building a more robust financial sector.

John S. Reed
New York, Oct. 21, 2009

The writer is retired chairman of Citigroup.

Above all, reforming the cesspool that is the US electoral process of campaign financing, which is an advert for graft and soft bribery, would help as well. There is no foolproof regulatory process when those who control it are ‘on the take’ or even more openly working for those who seek to subvert it.