Remember when "draining the swamp" was something the Bush administration swore it was going to do in launching its Global War on Terror? Well, as we all know, that global swamp of terror only got muckier in the ensuing years. (Think al-Qaeda in the Arabian Peninsula, think ISIS.) Then, last year, that swamp left terror behind and took up residence in Washington, D.C. In the 2016 presidential campaign, Donald Trump swore repeatedly that, along with building his wall and locking "her" up, he was going to definitively drain the Washington swamp, ridding the national capital of special interests once and for all. ("It is time to drain the swamp in Washington, D.C.," he typically said. "This is why I'm proposing a package of ethics reforms to make our government honest once again.") "Drain the swamp" became one of the signature chants at his rallies.
No sooner had he been elected, however, then he decided to "retire" the concept of draining the swamp -- and little wonder. After all, he quickly began appointing hordes of "former lobbyists, lawyers and consultants" to agencies where they were to help "craft new policies for the same industries in which they recently earned a paycheck." Then his administration started issuing waivers to those new appointees, allowing them to "take up matters that could benefit former clients." News of just who got those waivers was kept secret and only released after publicity about them took a truly bad turn. Here's a typical example of one of them, as reported by the New York Times: "A... waiver was given to Michael Catanzaro, who until January was registered as a lobbyist for companies including Devon Energy, an oil and gas company, and Talen Energy, a coal-burning electric utility. Mr. Catanzaro moved from lobbying against Obama-era environmental rules to overseeing the White House office in charge of rolling back the same rules, an activity permitted by his waiver."
You want swamp? You've already got the start of a genuine mire, a true bog in Donald Trump's Washington. Having yesterday's corporate lobbyists oversee today's government policies for the very industries that employed them last week doesn't exactly increase the odds of instituting the sort of "populist" economics Trump promised on the campaign trail; nor, as TomDispatch regular Nomi Prins, author of All the Presidents' Bankers, reported for this site back in late January, is appointing a veritable who's who of Goldman Sachs executives to key positions, including Treasury secretary, the most obvious way to drain the swamp when it comes to, say, America's banks and other financial institutions. As for those banks -- remember the "too big to fail" financial meltdown of 2007-2008? -- let Prins tell you just what's at stake in Washington right now. Tom
Dear President Trump: Breaking Up (Banks) Isn't So Hard to Do
Glass-Steagall or Another Economic Meltdown?
By Nomi Prins
Donald, listen, whatever you've done so far, whatever you've messed up, there's one thing you could do that would make up for a lot. It would be huge! Terrific! It could change our world for the better in a big-league way! It could save us all from economic disaster! And it isn't even hard to grasp or complicated to do. It's simple, in fact. Reinstitute the Glass-Steagall Act. Let me explain.
In the world of romance, if you break up with someone, it's pretty simple (emotional complications aside). You're just not together anymore. In the world of financial regulation, it used to be as simple as that, too. It was like installing a traffic light at a dangerous intersection to avoid deaths. In 1933, when the Glass-Steagall Act was passed, it helped break up the biggest banks of the day and for good reason: they had had a major hand in triggering the most disastrous economic depression our country ever experienced.- Advertisement -
Certain divisions of those banks were no longer allowed to coexist with others. The law split the parts of banks that placed bets by creating and trading certain risky securities and those that took deposits and provided loans. In other words, it ensured that the investment bank and the commercial bank would no longer cohabit. Put another way, it separated bankers with a heinous gambling habit from those who only wanted a secure nest egg. It was simplicity itself.
After 1933, the gamblers and savers went their separate ways, which proved a boon for the economy and the financial system for nearly seven decades. Then legislators, lobbyists, bankers, and regulators started to chisel away at the wall separating those two kinds of banks. By November 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act that repealed the Glass-Steagall Act totally. The abusive marriages of gamblers and savers could once again be consummated.
And who doesn't remember the result: the financial crisis of 2007-2008 that led to taxpayer-funded bailouts, subsidies, loans, and sweetheart fraud-settlement deals. Just as the Crash of 1929 had been catalyzed by the manufacturing of shady "trusts" stuffed with shady securities, this crisis was enabled by the big banks that engineered complex assets stuffed with subprime mortgages and other loans that were sold around the world.
Under President Obama, the 2010 Dodd-Frank Act was signed into law. The Act sought to limit the ability of big banks to trade the riskiest types of securities. Through inclusion of something called the "Volcker Rule," Dodd-Frank prohibited the trading of securities (even if with many loopholes). What it didn't do was actually break up the big banks again. That meant another 1933 still awaited its moment.
Then along came the bizarre 2016 presidential election campaign during which, strangely enough, Democrats and Republicans found one issue on which they had some common ground: the banking system. Key figures in both parties agreed that it was time to stop the investment bank and the commercial bank from commingling. Bernie Sanders ran on a campaign to break up the banks -- and so did Donald Trump. At at an October campaign rally in Charlotte, North Carolina, Trump even stated, "It's time for a twenty-first-century Glass-Steagall."
The Democratic National Committee platform offered a similar message. "Banks," it said, "should not be able to gamble with taxpayers' deposits or pose an undue risk to Main Street. Democrats support a variety of ways to stop this from happening, including an updated and modernized version of Glass-Steagall as well as breaking up too-big-to-fail financial institutions that pose a systemic risk to the stability of our economy."- Advertisement -
The Republican National Committee wasted even fewer words making the point in their platform: "We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment." And it didn't even suggest that the act should be "modernized" or mention a "twenty-first-century" version that didn't do what the twentieth century one had done.
For the first time since its repeal, in other words, a return to the Glass-Steagall Act had bipartisan support. It couldn't have been simpler, right? Two parties, one idea: split banks into two pieces. But then, as if you hadn't already guessed, it got complicated.