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Time to bring back Glass-Steagall

Editor, Index-Tribune:

    

  David Bolling’s editorial of 10/18/11 ended with a recommendation that the Glass-Steagall Act be reinstated. This was a great proposal.

  One of the causes of the Great Depression was an unholy alliance among investment houses and banks. Security exchanges were able to utilize depositor’s funds from commercial banks to invest in the market. When the stock market crashed in 1929, so did the banks.

  The Glass-Steagall Act, named after its Democratic sponsors, was the Banking Act of 1933, passed in the first year of the New Deal. It established the Federal Deposit Insurance Corporation (FDIC), among other reforms, to regulate the banking industry. Its central regulation was the creation of a firewall among commercial banks, insurance companies, and investment houses. Each was to conduct business separate from one another.

  In 1999, three Republicans – Sen. Phil Gramm, from Texas, Rep. Jim Leach and Rep. Thomas Bliley, from Iowa and Virginia, respectively - introduced legislation to repeal the Glass-Steagel Act. With lobbying assistance from the banking, investment, and insurance industries, the Gramm-Leach-Bliley act passed the Republican Congress, and President Clinton signed it.

  Graham-Leach-Bliley wiped out 66 years of regulatory investor and depositor protections. The 1999 act also deregulated conflict of interest laws that prohibited investment bankers from serving as officers in commercial banks. Is it a wonder that, in 2008, commercial investment houses like Lehmann Brothers and the insurance company AIG collapsed, and the government had to bail out the banks that “were too big to fail?”

  Its time to elect representatives to Congress who will reinstitute this important reform. Congrats to Mr. Bolling and the Index-Tribune for focusing on this important issue.

   Tom Martin

  Sonoma