From the Roundtable: Time to reinstate Depression-era legislation
The past couple of weeks have been tough on the business community, with dire developments affecting what I consider to be a most important aspect-consumer confidence.
Fates and fortunes rise and fall with each day’s news amplified for better or worse by increasingly sophisticated communications tools such as the iPhone. There’s some history worth recalling as the nation recovers.
Similar financial twists and turns or “bubbles” have been part of economic life for centuries. Some of us might have anticipated this after President Clinton signed the Graham-Leach-Bliley Act on Nov. 12, 1999. This virtually veto-proof bill, eased by several hundred million dollars of lobbying grease, repealed a key provision of the Banking Act of 1933, otherwise known as the Glass-Steagall Act.
President Franklin D. Roosevelt signed the Glass-Steagall Act on June 12, 1933, when the nation was still roiled by the Great Depression set off by the collapse of the securities markets in October 1929. Glass-Steagall created the Federal Deposit Insurance Corporation, which was designed to ensure confidence and security between depositors and the insured banking institutions entrusted with their funds.
In a provision less known to the public, Glass-Steagall also prohibited bank holding companies from owning or participating in other financial institutions such as insurance companies and security brokerage houses. Over time, this federally mandated separation between banks and other security institutions has served us well and become the model followed by other countries.
As a gentle indictment of capitalism, most business people rather abhor regulation. They constantly probe for creative openings in the system in order to make more money. It was argued through the 1980s and 1990s that this provision of the Glass-Steagall Act was outdated legislation enacted under the emergency conditions of the Depression era and was hindering economic growth.
There is another piece of legislation that was a notable precursor to the mess we’re in now-the Garn-St. Germain Depository Institutions Act. The legislation deregulated the savings and loan industry and was signed by President Ronald Reagan on Oct. 15, 1982. The deregulation ultimately led to the collapse of the entire savings and loan industry and another zillion-dollar, federally funded bailout some 20 years ago. Isn’t it ironic how congressional leaders still very much in the news today, including Rep. Steny Hoyer (D-Md.) and Sen. Charles Schumer (D-NY), were such prominent supporters of the S&L deregulation back in 1982!
Through the impasses, backsliding, double speak and obfuscation of the legislative and executive process, what most of us want right now is some definitive, concrete action. Those of us who decry regulation and crave the often-times idealistic preaching of libertarianism should recognize some strictures and guidelines are important when it comes to regulating and monitoring our financial institutions.
First on the list should be the immediate reinstatement of the Glass-Steagall Act provisions revoked in 1999, which would once again create an inviolate, impenetrable wall between bank holding companies and other financial entities such as insurance companies and firms that trade in securities.
The country should concurrently direct its attention to restoring confidence in the entire range of financial institutions from the tiniest local bank to the largest of its stock and commodity exchanges.
Al Germond is the host of the “Columbia Business Times Sunday Morning Roundtable” every Sunday at 8:15 a.m. on kfru. He can be reached at [email protected].