Don't You Think It's Time to Reinstate the Laws That Would Have Prevented the Financial Crash?

This week marks the tenth year anniversary of the repeal of the Glass-Steagall Act of 1933, by the Gramm-Leach-Bliley or Financial Services Modernization Act, marking the moment when we were royally screwed by the banking system. Thank you to all those involved.

It's amazing how downright ebullient, President Bill Clinton was at that signing ceremony on November 12, 1999. an event introduced by then Treasury Secretary (now Obama advisor) Larry Summers, successor to Robert Rubin. Those restricting, anti-competitive Depression era, laws were finally behind us. Awesome.

Fast-forward to now and must of us know how devastatingly expensive that signature was for the American public. Yet, despite our government having deployed or made available over $14.1 trillion worth of federal subsidies to fix Wall Street, the banking landscape is less stable than it was before last year's crisis. And, despite national unemployment approaching double digits, and another record quarter of foreclosures, we stand farther away from the intent of Glass Steagall than ever.

Banks weren't handled with kid gloves then. They were treated like the spoiled, reckless, destructive beings they were. After the stock market crash in 1929, the country sunk into the throes of the Great Depression, characterized by 25% unemployment, bread lines, rampant foreclosures, and general despair. In 1932, the Pecora commission examined the shady banking practices that contributed to the devastation, all of which hinged on one thing - banks had used depositor capital and loans to speculate with. Exactly like the practices going on before and since last fall's financial calamity. The result of that speculation gone wrong tanked the economy. Glass-Steagall logically sought to ensure this wouldn't happen again. It divided up the banking landscape into two parts, commercial banks and investment banks. The federal government would back commercial banks and consumer deposits through establishing the Federal Deposit Insurance Corporation (FDIC). But, it wouldn't be Wall Street's investment bank bookie and bitch.

Over the decades, the financial sector, armed with cunning lobbyists and overpaid lawyers, took many swipes at Glass-Steagall, but none as devastating as the Gramm-Leach-Bliley Act. Since then, the banking sector's powerful ate its weak, amidst a wave of massive consolidation. Nearly half of the nation's biggest bank mergers took place just before or since that Act was passed. All these mega banks can thus churn deposits and loans into debt or capital to fund speculation, risk, and create a roller coaster of an economy that is defined simply on whether those bets, or asset creations, work or not, at any given moment. Heads they win, tails we lose.

Last fall, the Federal Reserve, and to some extent the Treasury Department, not only blessed, but subsidized the mergers and moniker changes (like seriously, if Carrie Prejean's title can be stripped, certainly Goldman's behavior warrants removal of the bank holding company title), helping too big to fail to become even bigger with riskier profiles than ever before. Only this time they are floated on public assistance. This is not progress. It's expensive insanity. And, it will blow up again. It is a matter of when, not if.

Meanwhile, as reform bills from Senator Christopher Dodd's (D-CT) to Representative Barney Frank's (D-MA), to the plans from the Treasury Department and the White House, make their way from concept to draft to vote, we've got to keep one thing in mind. The beast that is today's complicated, convoluted, risk taking, federal capital sucking, and bonus paying mega-bank is still roaming around free.

As long as it remains out of its cage, creating plans to slow its movements are always going to be much harder, than putting it back in a stronger cage. Though, it's important to have a Consumer Financial Protection Agency, better derivatives regulation (if only that were on the table for real), and 'funeral plans' as Dodd's bill calls them, to put too big to fail banks to bed just before they keel over, it doesn't change the nature of the beast.