"I want to ensure that we never stick the American taxpayer with another $700 billion--or even larger--tab to bail out the financial industry," McCain proclaimed in introducing his legislation. "This country would be better served if we limit the activities of these financial institutions."
As we all know, just the opposite had happened under the great bailout: The big investment houses of Goldman Sachs and Morgan Stanley were allowed to suddenly attain the status of commercial banks in order to qualify for federal bailouts, and the once staid commercial Bank of America was encouraged by the Fed to buy out the investment house Merrill Lynch. As a result, banking has never before been concentrated in so few hands. As Rep. Hinchey put it:
"Today, just four huge financial institutions hold half the mortgages in America, issue nearly two-thirds of credit cards, and control about 40% of all bank deposits in the U.S. In addition, the face value of over-the-counter derivatives at commercial banks has grown to $290 trillion, 95% of which are held at just five financial institutions. We cannot allow the security of the American economy to rest in the hands of so few institutions."
Those derivatives, that hodgepodge collection of securitized debt--including mortgages of most American homes--are at the heart of the problem, and they are not regulated in any significant way by the legislation supported by the Obama administration. And that's not surprising, since Larry Summers, the president's top economic adviser, was not only a key proponent of reversing Glass-Steagall in the Clinton White House, but also supported the Financial Services Modernization Act, passed a year later, which summarily exempted those suspect derivatives from any regulation.
Although Obama has blasted "fat cat bankers on Wall Street," it's time for those who elected him to ask for more than rhetoric -- and to ask that of the Democratic leaders of the House, who refused to allow a vote on Hinchey's amendment to include the restoration of Glass-Steagall in their so-called Wall Street Reform Act.
Forced to introduce it as a separate bill, Hinchey decided to reveal the bald truth:
"The repeal of the Glass-Steagall Act was done to help large banks become enormous and to line the pockets of banking executives with more money than most Americans could ever dream of earning in their lifetime. My bill would help right the ship and return our country to the days when banks either participated in commercial lending activities or investment activities, but not both."
There are very good and rather obvious reasons for preventing commercial banks (which, insanely, are now allowed to carry the hard-earned savings of depositors and a federal guarantee of their worth) from engaging in the high-roller risk-taking of investment banks.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).