The death of Glass-Steagall

Ken Silverstein has been reading an 11/5/9  New York Times report on the repeal of Glass-Steagall, enthusiastically embraced by then-Treasury Secretary, Larry Summers.

"Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," Treasury Secretary Lawrence H. Summers said. "This historic legislation will better enable American companies to compete in the new economy."

Silverstein comments: "The dissenters, led by Senators Byron Dorgan and Paul Wellstone, were generally derided as retrograde anti-free marketeers who just didn’t understand Wall Street and the geniuses who ran it."

Rachel Maddow interviews Byron Dorgan about his opposition to the repeal of Glass-Steagall almost ten years ago.

Harvard Law published a reprint of a Wall Street Journal description of the pressures leading up to the bill's passage about ten days before the repeal became law.  Its passage wasn't all that easy.

For yet another flavor of the times, you can read a contemporary Treasury Department study, written four months after the repeal (4/2000) explaining justifying the repeal.  The rationale was based on the ability of regulators (remember them?) to protect the stability of the financial system.

The challenge of the regulators and supervisors overseeing banking companies will be to allow these banking companies to innovate and adapt to the ever-changing global marketplace while protecting the safety and soundness of the financial system and the interests of those who fund the federal safety net for banking companies.

Right.  What about regulation now? Among  Obama's proposals during his campaign:

• Giving the Federal Reserve system more oversight authority over institutions to which it provides credit as a "lender of last resort." Although Obama did not outline specifics, saying those would depend on the level of the Fed's assistance, "but at the very least, these new regulations should include liquidity and capital requirements."

• Strengthening capital, liquidity and financial disclosure regulations for financial institutions. "Transparency requirements must demand full disclosure by financial institutions to shareholders and counterparties," Obama said.

• Creating a financial oversight panel that could monitor and report to the president about such rapid financial developments as the growth of bond-backed subprime mortgages.

• Providing an additional $30 billion in economic stimulus spending, including $10 billion in a foreclosure prevention fund for homeowners. Obama said the fund was designed to help homeowners "sell a home that is beyond their means, or modify their loan to avoid foreclosure or bankruptcy." He also called for overhauling bankruptcy laws, "so families aren't forced to stick to the terms of a home loan that was predatory or unfair."

• Strengthening investigations into trading activity that appears to involve market manipulation. "Reports have circulated in recent days that some traders may have intentionally spread rumors that (investment banker) Bear Stearns was in financial distress while making market bets against the company. The SEC should investigate and punish this kind of market manipulation and report its conclusions to Congress," Obama said.

• Creating a 10% mortgage interest tax credit for homeowners who do not itemize their taxes, cutting income taxes by up to $1,000 a year for "working families" and eliminating income taxes for retirees making less than $50,000 per year.

The real watchdogs?  You and me, kiddo!