Anyone watching the second Democratic debate [Saturday, December 19, 2015,] surely noticed that there was a distinct difference in policy between the boys [Bernie Sanders, center, and Martin O’Malley] and Hillary Clinton, when it comes to reforming Wall Street. So the questions are: what is the difference? and why does it matter?
It might be helpful to define what we are talking about when we say “Wall Street.” First of all, Wall Street is a place. It is the financial district in the Manhattan area of New York City. It is home to two of the world’s largest stock exchanges: NYSE and NASDAQ. Included are the Mercantile Exchange and the New York Board of Trade. It is sometimes called the “Financial Capitol of the World,” although that may be stretching things a bit.
Wall Street is associated with names like J. P. Morgan and John D. Rockefeller. It is used as a term to refer to giant banks and financial institutions–such as JP Morgan Chase & Co., world’s fifth largest bank in the world; Bank of America, number 12; Citigroup, number 14; Wells Fargo, number 16. Because these banks often insure against losses on their huge loans, a.k.a. bets, AIG (American International Group) is also considered a part of this Wall Street establishment.
Sanders and O’Malley specifically said they would bring back Glass-Steagall. They are referring to the Glass-Steagall Act of 1933, meant to keep the Great Depression from ever happening again. It is named after its Senate sponsor, Senator Carter Glass (D) of Virginia, and Congressman Henry B. Steagall (D) of Alabama. This was a part of banking reform stemming from the Great Depression of 1928-1936. Because so many banks failed, and people lost all their savings, the overwhelming Democratic Congress under President Franklin D. Roosevelt reformed banking–so people would put their money back into banks, instead of under the mattress.
They created the Federal Deposit Insurance Corporation (FDIC.) Originally, your savings, up to $2500 in a FDIC-insured bank, were guaranteed safe by the Federal Government. However, these banks were not allowed to be “investment” banks. Investment banks had to use uninsured capital to invest in large projects, that may or
may not pay off. Banks would take big risks; they could win big, or lose big. But taxpayers were not going to suffer the loss. This changed during the Bill Clinton Administration.
In 1999 Senator Phil Gramm (R) from Texas, Congressman Jim Leach (R) of Iowa, and Congressman Thomas J. Bliley, Jr. (R) of Virginia introduced legislation that resulted in the gutting of Glass-Steagall. It allowed commercial banks, investment banks, securities companies, and insurance companies to consolidate. They called it, the “Financial Services Modernization Act of 1999.” This legislation created the “Too Big to Fail” banking institutions. It also put taxpayer on the hook for losses, because these banks could now use FDIC-insured deposits to leverage money, in financing investments that may or may not succeed.
Hillary did not say she would support a return to a modern version of the Glass-Steagall Act. She said it wasn’t good enough, because it did not include insurance companies like AIG, which was an important part of our most recent financial disaster. She did not mention that other laws govern insurance companies. The implication was that she would go one better than the boys. Re-instating Glass-Steagall would require the “Too Big to Fails” to break up into smaller companies. It would insure that the taxpayers will not have to bail out Wall Street again.
Going to Hillary Clinton’s campaign website you will find: “Impose accountability on Wall Street. Nowhere will the shift from short-term to long-term thinking be more important than on Wall Street. Hillary will defend the Wall Street reforms put in place after the financial crisis–and she’ll go further. She’ll tackle dangerous risks in the financial sector….She’ll appoint and empower tough, independent regulators and prosecute individuals and firms when they commit fraud or other criminal wrong-doing.”
This sounds like keeping the status quo, while adding more regulations–something Wall Street can live with.
So, realizing that the Republicans are very unlikely to win [the Presidency] in 2016, it would make sense to Wall Street to send some money Hillary’s way. They would much rather have Hillary and a little more regulation, than Bernie or Martin and have to break up their operations. Why does this matter?
The financial crash at the end of President George W. Bush’s term aptly answers this question. High unemployment for a long period, home foreclosures in record numbers, bank foreclosures everywhere, and a massive bailout of the “Too Big to Fail” banks draining our treasury made life miserable for millions of our honest, hard-working citizens.
It is reasonable to ask, “Whose policies would better protect our economy, Hillary’s or the boys’?” As for the Republicans, their answer is “Less regulation; trust the bankers.”