Jewish World Review June 19, 2012/ 29 Sivan, 5772
Simpler is better: Dust off Glass-Steagall
By Paul Greenberg
It's a rule in the military: A commander is responsible for everything his unit does -- or fails to do. In business and government, another rule applies all too often: It was somebody else's fault. CEO Dimon, you see, was simply misinformed by his underlings. Yes, and all this administration's problems with the economy are
At one point Mr. Dimon did grant that, yes, a ban on banks-cum-investment houses like
Then again, changing the law may very well not have prevented this little
Who says bipartisanship is dead? A bad cause always seems to unite the worst instincts of both parties. In this case, both Republicans and Democrats united to rev up the economy and the power of hybrid banks/investment houses. It proved a ghastly miscalculation. We're still living with the results.
The old Glass-Steagall Act, itself the result of lessons learned in the Great Depression, had stood for half a century, but the appetite for pelf and power proved too much to keep it in place. And, soon enough, the Great Recession demonstrated once again that lessons don't stay learned. People may learn; governments never seem to.
Now we're assured that the old wall is being restored under a new name, the Volcker Rule. But that rule has been so diluted in the course of making it into law, and it's still so vague and unformed, with at least five federal agencies hammering out its none too clear provisions, the new rule may prove less a wall than just a series of gaps. With the usual favored special interests allowed to speculate with federally insured funds.
It would have been too simple just to re-enact Glass-Steagall and admit a mistake. Instead, a new and vast bureaucratic compromise was passed with details (the most important part) to be ironed out later, or maybe never. The key decisions, as with Obamacare and all other aspects of America's rising new regulatory regime, are to be left to the usual anonymous regulators, our new class and high priesthood.
This "solution" is supposed to let investors hedge their bets but not engage in speculation. Although no one has ever satisfactorily explained the supposed difference between hedging (good) and speculation (bad), perhaps because there really isn't much of one. Some of us suspect it's just a matter of conjugation: "I hedge, you speculate, they gamble." Hedging is starting to sound like just a polite term for betting across the board.
If banks are going to play the market, let's call them what they are -- investment houses -- and let them risk their own money rather than mix it with ours, which is what happens when a federally insured bank decides it wants to be an investment house, too.
In his appearance before the committee, Mr. Dimon emphasized that the
In that case, why not call an investment bank an investment bank, and not a regular, commercial bank, too, the kind that makes business, house and car loans to the rest of us?
It was one thing for the feds to rescue federally insured banks, another when it started taking over investment houses, hedge funds, automobile companies ... you name it. The road to serfdom is lined with just such emergency legislation, which tends to stay in place long after the emergency has passed. As this president's chief of staff at the time put it, a financial crisis is a terrible thing to waste.
There ought to be a clear line of demarcation where Chase bank ends and JPMorgan investments start. Instead, we get this two-headed monster that can lose
Let's go back to the good old Glass-Steagall Act. Let's return to the past; it would be progress.
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