By Jeffrey Steinberg,
Rep. Marcy Kaptur (D-Ohio), with the backing of Reps. Walter Jones (R-NC) and Jim Moran (D-VA), has introduced a bill in the House of Representatives (H.R.1489) “Return to Prudent Banking Act of 2011,” which would reinstate the original 1933 Glass Steagall Act, that broke up the Depression-era “too big to fail” banks, and gave the nation 66 years of stable banking.
The bill has 19 co-sponsors, including four Republicans and members of the House Democratic leadership, including Louise Slaughter (D-NY) and George Miller (D-CA).
According to Sen. John McCain (R-AZ), he will co-sponsor a Senate bill to reinstate Glass Steagall in the near future. Both the Angelides Report of the Independent Commission on the Financial Crisis, and the Senate report issued by Carl Levin (D-MI) and Tom Coburn (R-OK) through the Senate Permanent Investigations Subcommittee, concluded that the repeal of Glass Steagall marked the beginning of out-of-control financial speculation and the buildup of a massive real estate bubble that ended in a crash.
Rather than acknowledge the speculative binge of 2000-2007, leading federal officials—then Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and then-New York Federal Reserve President Timothy Geithner–rallied to defend Wall Street’s gambling binge, pouring tens of trillions of dollars in taxpayers’ money in a failed bailout.
Neil Barofsky, who was the Special Inspector General of the TARP bailout program, told the U.S. Senate in July 2010 that the total cost of the bailout had been in excess of $23 trillion-counting funds that were passed on to failed financial institutions and funds set-aside through various discount windows, managed by the Fed and Treasury.
In a recent interview, Barofsky, now a professor at New York University, warned that a new bailout–“QE III”–was imminent, and that it would cost taxpayers at a minimum of another $5 trillion.
Three years into the collapse and the taxpayers bailout, the six “too big to fail” Wall Street banks are 20% bigger, and carrying more toxic assets on their books than in 2008.
In the interim, at least 7 million American families lost their homes, with a projected 8 million more foreclosures anticipated, before the bubble hits bottom–unless something is done.
There must be–and there is–a better way. The better way is the immediate passage of H.R. 1489, and the accompanying Senate legislation. Under the proposal, the Big Six Wall Street banks would have two years to break up, leaving the commercial banks, with FDIC protection, back in the business of managing depositors’ funds and issuing useful loans for households and businesses.
Free from the leveraged gambling debts of the brokerage and insurance entities, the commercial banking sector, under Federal protection, could resume its traditional functions. These functions are vital for Main Street and for economic recovery that is so urgently needed.
Under a reinstated Glass Steagall, we would no longer be obliged to honor those gambling debts. Like an unauthorized charge on your credit card account, those gambling debts–that should have never been absorbed by taxpayers and the Federal government—will be charged back to the brokerages and insurance firms that engaged in those reckless practices in the first place.
The logic of this solution is not only resonating in the Halls of Congress, but also in State Houses and City Halls throughout the country. The Machinists Union and state AFL-CIO unions have endorsed the proposal.
The question now is whether Glass Steagall will be reinstated in time to avert another disastrous Wall Street bailout, a bailout that the nation just may not survive, as we know it.
This is a time for every individual citizen, and every civic organization to make sure that H.R. 1489 and the pending Senate bill are enacted into law.
As Lyndon LaRouche has repeatedly stated for the past four years, Glass Steagall is the vital first step towards saving this nation, and the world as a whole, from a prolonged collapse.