WASHINGTON – As America’s workforce continues to shrivel in a stalled economy, a political activist group is calling for a “National Week of Action,” beginning Monday.
With Congress returning to Capitol Hill, proponents of the Glass-Steagall banking law will renew their push to rebuild the wall that once separated commercial banking from more risky investment brokerages.
HR 129 – The Return to Prudent Banking Act– has 60 bipartisan co-sponsors in the House. Four states have passed resolutions calling for reimplementation of , and a dozen other legislatures, including Virginia’s, are considering similar measures.
Rep. Marcy Kaptur, D-Ohio, introduced HR 129 to restore Glass-Steagall, saying, “The response of Congress to the 2008has been completely inadequate.”
The Glass-Steagall Act was repealed in 1999 under pressure frombankers trafficking in bundled subprime mortgages, derivatives, collateralized debt obligations, credit default swaps and the like. Inventing evermore exotic investment vehicles, the money movers pumped up a global financial bubble that eventually burst.
No senators have yet signed on to restoring the protective shield of Glass-Steagall, but Sen. Joe Manchin, D-W.Va., broached the subject while questioningand financial regulatory officials at a Banking Committee hearing in February.
“Glass-Steagall was put in place in 1933 to prevent exactly what happened to us,” Manchin said, referring to the 2008 collapse. “Why wouldn’t we have those protections?”
Kaptur said the financial crisis “caused the loss of 8.8 million jobs and $19.2 trillion of household wealth (while) the seven largest banks in the United States — JPMorgan Chase, Bank of America, CitiGroup, Wells Fargo, Goldman Sachs, Metlife and Morgan Stanley (a spinoff of JPMorgan Chase) — hold nearly two-thirds of the entire nation’s financial assets.
“There is no reason that our savings or checking account deposits should be used as leverage so Wall Street’s megabanks can engage in speculative trading,” the Ohio lawmaker stated.
In a new book, “The Great Deformation: The Corruption of Capitalism in America,” Reagan administration budget director David Stockman writes about the positive restraining effects of Glass-Steagall.
“What we have (now) is massive fiscal stimulus; what we have is a Fed that creates serial bubbles,” concluded the former Republican congressman from Michigan.
Paul Gallagher, economics editor of Executive Intelligence Review, a weekly magazine published by Lyndon LaRouche’s political organization, says the restoration of Glass-Steagall is essential to America’s economic recovery.
“Commercial banks are not lending. Deposit levels in commercial banks are up $1.6 trillion since 2008 (due largely to increased printing of money by the Federal Reserve), but lending is down by $990 billion,” Gallagher told Examiner.com in an interview.
“Where has the money gone? Banks are rolling in excess cash reserves. The biggest banks are holding and investing to protect themselves against securities losses they know are coming.”
April’srate, while dipping to 7.5 percent, highlighted the split personality of the U.S. economy. Even as the Dow and other Wall Street indexes hit new highs – artificially inflated by the steady devaluation of the dollar — the nation’s labor pool continues to shrink.
Nearly one in five Americans aged 19-28 is out of work, according to Generation Opportunity, a national, non-partisan youth advocacy organization.
The group calculated the “effective youth unemployment rate” at 16.3 percent. The official U.S. figure is 11.5 percent, a number derived by not counting 1.7 million young adults who have quit looking for work.
“It isn’t like politicians care,” said Evan Feinberg, president of Generation Opportunity. “They spent (last month) pushing an Internet sales tax. Reckless policies coming from Washington continue to prevent the next generation from prospering.”
Former Fed Chairman Alan Greenspan fought stricter financial regulations, reasoning that free markets will, over time, produce the best outcomes and that open competition would naturally weed out marginal players.
But Virginia state Sen. Dick Black, R-Leesburg, counters that “by separating traditional banking and high-risk investment banking, Glass-Steagall stabilized our banking system from 1933 to 1999.
“After it was repealed, ‘Too Big to Fail’ banks shifted their wildly speculative gambling losses to the backs of taxpayers. Some believe that has extended the Great Recession that plagues us still,” the senator told Examiner.com.
Urging Virginia’s congressional delegation to act, Black introduced Senate Joint Resolution 273, and Delegate Bob Marshall, R-Manassas, sponsored House Joint Resolution 600 — both seeking to restore Glass-Steagall.
Gallagher said “gambling debt” by U.S. financial institutions resembles the ruinous monetary policies of Europe, where unemployment rates are higher and nations teeter toward bankruptcy.
He said separating commercial banking from higher-risk investment activity is crucial to recovery, and he points to Iceland as a success story.
The volcanic island nation – which had become a playground for British and other global investors by the early 2000s – suffered an economic collapse before the U.S. financial bubble burst.
But unlike Washington, which spent hundreds of billions of dollars funding a Troubled Asset Relief Program, Iceland’s government refused to bail out banks.
“We didn’t pump money into the banks,” President Olafur Grimsson told the Washington Times. “Why do people consider banks so holy that they cannot go bankrupt?”
Grimsson viewed the decision as a choice between democracy and Wall Street. In a national referendum, Icelanders voted against any bank.
“Every doomsday scenario turned out to be wrong,” he noted.
Gallagher agrees, pointing out that Iceland now has a 5.5 percent unemployment rate.
“It hasn’t been a picnic, but their economy is doing well and they are in the process of enacting Glass-Steagall-like law,” Gallagher said.