Glass Steagall Or Die
The Banking Act of 1933, or Glass-Steagall Act, was crucial in enabling Franklin Roosevelt to reign in the usurious powers of Wall Street and establish a sound foundation upon which a sovereign economic recovery could be brought about. The takedown of the Glass-Steagall legislation, officially in 1999, was a culminating expression of a decades long premeditated conspiracy ultimately aimed at eliminating America's economic sovereignty, once the bastion of anti-imperialistic development. Restoring Glass-Steagall today is the only chance at economic recovery for the United States and the world.
The Fatal Repeal
The Glass-Steagall firewall between commercial and investment banking was formally repealed in November 1999, by the Gramm-Leach-Bliley Act, which created the new classification of financial holding company, with the power to underwrite and sell insurance and securities, engage in both commercial and investment banking, invest in and develop real estate, and related activities.
One of the worst aspects of Gramm-Leach-Bliley, is that it gave the speculative side of these new monstrosities access to the deposit base of the commercial banking side, turning bank deposits into fuel for the derivatives machine. At the end of 1999, these holding companies had $4 trillion in assets, and $38 trillion in derivatives, or about $9 in derivatives per dollar of assets. A decade later, as of the second quarter of this year, they had $13 trillion in assets and a staggering $291 trillion in derivatives, or $23 in derivatives for every $1 of assets. These aren’t banks, they are casinos.
The top four banking casinos, JP Morgan Chase, Bank of America, Citigroup, and Wells Fargo, represent almost half of the U.S. banking system—46% of the assets and 42% of the deposits. They also have $194 trillion in derivatives bets. Goldman Sachs and Morgan Stanley, the two investment banks that converted to financial holding companies last year, add between them another $88 trillion to the derivatives total.
This insane derivatives bubble is what blew up the global financial system, bankrupted the U.S. banks, and has devastated most of what remains of the productive capacity of the U.S. economy. It would never have been possible, had the Glass-Steagall standard been maintained and enforced.
We must begin by wiping out all the derivatives, declaring all such bets null and void, by law—in effect, restoring the law to its status before it was corrupted.
Outlawing derivatives solves the problem of having to wind down all the speculative bets and fictitious claims, and allows us to turn our attention to the more complicated process of sorting out the valid debts from the speculative ones. The valid debts—those arising from real economic activity related to the physical economy— will be honored, while debts related to the speculative bubble will be set aside, to be dealt with after the nation recovers. For debts which have a bit of both— say a mortgage on a home whose purchase price was highly inflated by the effects of the mortgage-securities scam—the size of the debt would be written down to reflect the actual economic value of the property.
FDR understood what Obama does not: People are more important than money. The issue is not maintaining the values of speculative finance. The issue is protecting the lives and welfare of the people. The immediate reinstatement of Glass-Steagall is a necessity, if we are to survive.