Warren and co. first introduced their legislation last year, but didn’t get the support they needed at that time to progress it. “The biggest banks are collectively much larger than they were before the [2007/8] crisis, and they continue to engage in dangerous practices that could once again crash our economy. The 21st Century Glass-Steagall Act will rebuild the wall between commercial and investment banking and make our financial system more stable and secure,” she said yesterday.
The Glass Steagall Act was introduced in 1933 in the US, following the so-called “Great Depression”. It forced banking institutions to make a decision about the type of banking they wished to pursue. It was recognised at the time that it was the combination of high street retail banking and “merchant”, or “investment”, banking which had caused the financial collapse of the 1930s.
By keeping these two banking functions separate, the impact on the real economy of any losses incurred as a result of the casino activities of the merchant banks was minimal. Yet the banks campaigned vigorously for decades to have Glass Steagall repealed. The last thing they wanted was to have minimal impact on the real economy. Without the threat to the property, income and lives of real people, how could they hold nations to ransom, after all?
The Glass Steagall Act was finally repealed in the US in 1998, during the Clinton administration. Its repeal continued a process begun by Margaret Thatcher in the 1980s - the so called “Big Bang”, which removed Britain’s informal equivalent to Glass Steagall, the separation of commercial banks and merchant banks.
Today, the western world is in a position where so much money is “owed” to its financial system by governments, businesses and individuals, that the banks’ claims can never be paid, no matter how much “austerity” is imposed, or how many people are killed by the collapsing standards of nutrition and health care as a result.
Indeed, since the so-called debt is many times the productive value of the planet, there is no prospect of the real economy paying the debt either. And since the same banks who have lent all this money, have then made bets upon bets on those loans, they have bankrupted themselves.
While many people warned of the position the banks were in for many years leading up to the 2007/8 crash, the banks and financial commentators denied it. They still deny it. Yet as Ian Crane pointed out on Monday night’s Humanity versus Insanity, the bailouts they required post 2007 far outstrip the bailout required by Greece. Are the banks going to pay this money back?
Bailouts are no longer considered acceptable. In other words, governments and the banks know that they won’t get away with it again. So the new term we have all had to learn is the rather stupid “bail-in”. This is where instead of banks stealing from the taxpayer, they steal from the taxpayer. After all, aren’t people with bank deposits also taxpayers? Well, ok, not in all cases.
In time for the coming bail-ins required by the bankrupt banks, the Bank of England has reduced the level of deposits covered by Britain’s deposit guarantee scheme.
Following the 2007/8 crash, there were many calls for the banks to be split up. Sadly, however, the Treasury Select Committee didn’t have the guts to do it, instead bringing in the “ring fence”. This keeps the banks in their “too big to fail” condition, but supposedly prevents any cross-contamination between the commercial and investment banking operations. Yeah, right.
To reiterate: the so-called debt to the financial system is many times the productive value of the planet. There is no prospect of the real economy of any so-called first world nation paying it down, never mind Greece. The only option is to write the debt off.
And in order to do that, the banks have to be split up. Once that is done, the commercial banking services which support the real economy can be protected. The investment banks lose the stranglehold they have over the rest of us, and can be allowed to fail.
So we have to applaud efforts to reinstate Glass Steagall in the US, and keep the pressure on to see it implemented here in the UK. The banks, of course, supported by politicians and journalists, will fight tooth and nail to prevent that happening. Do we intend to let them?
Main image: Ben Wikler (creative commons)