and thereby radically deregulated the financial industry, allowing hundreds of billions of new profits to be made by Wall Street, at great cost to the American public.
But now John McCain and Sen. Maria Cantwell, D-Wash. have sponsored a bill to repeal Gramm's bank-friendly legislation, while captive Obama seeks to preserve it!
The Gramm legislation, which permitted the merger of investment and commercial banks into too-big-to-fail corporations (including Citigroup and AIG, two financial giants that had to be bailed out by taxpayers), was thought by Obama the candidate to be a key cause of the meltdown. But as president, Obama's views did a "180" turnabout and he reappointed the Clinton-era officials who had sided with Gramm in ending sensible banking regulations that had protected the American public from predatory capitalism for 70 years.
Rather than restore Glass-Steagall, the Obama-backed banking regulation bill (which was passed last month by the Democratic majority in the House) went along with the desire of Wall Street lobbyists to a) prevent the breakup of the big conglomerates and b) block any control of their massive trading in the derivatives that has proved to be so toxic.
The result, with some deceptive reformist window dressing, is a pro-Wall Street business-as-usual cop-out, and the Senate version is likely to be more of the same.
Fortunately, there is a better way, and thanks to the McCain-Cantwell bill and a companion bill authored by Rep. Maurice Hinchey, D-N.Y. in the House, there is still a chance at serious financial regulation through the restoration of the key provisions of Glass-Steagall.
How odd that it now remains for John McCain to stand up to the oversized and overly powerful banks:
"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: