The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) in the United States and provided a strong regulatory environment that largely served the nation and its banking sector well. The law separated commercial banks from investment banks by banning commercial banks from underwriting securities, forcing banks to choose between being a lender or an underwriter but not both. The law was finally repealed in 1999 during the Clinton Adminstration after 12 attempts in 25 years had weaken the provisions. [...]
This week five House Democrats - Maurice Hinchey of New York, John Conyers of Michigan, Peter DeFazio of Oregon, Jay Inslee of Washington, and John Tierney of Massachusetts - will introduce an amendment that would give banks one year to choose between being commercial banks or investment banks. I support this amendment and believe it critical to the future success of the country because it will restore a balance within the finance industry letting commercial banks do what they do and investment banks do what they do.
It took less than a decade after the provisions in Glass-Steagall concerning investment versus commercial banking were removed for the entire edifice to collapse. Think about that. From 1933 to 1999 - two whole generations, roughly speaking - the banking sector, and by extension the rest of society - were protected from the dangers of complete financial collapse. Then, from 1999 to 2008, and look where we are now. It almost makes me want to go back in time and smack Phil Gramm around.
Anyway, this is an idea that is long overdue, precisely as the House is taking up consideration of new financial industry regulations. It seems to me we don't so much need new ones as a return to the old ones that worked quite well. They weren't perfect, to be sure, but they worked, which is far better than perfection any day of the week.
