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Sens. Cantwell & McCain Lead Senate Effort to Reinstate Glass-Steagall

December 15, 2009 - by Donny Shaw

Throughout the financial crisis one law has been cited over and over as a main cause of the collapse and, more significantly, the resulting bailouts of “too big to fail” banks. That law is the Gramm-Leach-Biley Act, which repealed a New Deal-era financial regulatory rule known as the Glass-Steagall Act, which was signed into law by FDR to keep regular commercial banks separate from Wall Street investment banks. The law was repealed in 1999 by Bill Clinton; the pen that signed the law to repeal it is now hanging as a trophy in the halls of Citigroup’s corporate headquarters.

Now there’s a movement in the Senate to reinstate the Glass-Steagall protections. It’s being championed by Sen. John McCain [R, AZ] of all people, and Sen. Maria Cantwell [D, WA]. Newsweek reports:

John McCain lost the 2008 presidential election because of the financial crisis—at least that’s what his chief strategist, Steve Schmidt, suggested. “We were three points ahead on Sept. 15 when the stock market crashed. And then the election was over,” Schmidt said in a postmortem earlier this year. McCain was tarred with the regulatory failures of the Bush years, and it didn’t help that he had been a longtime acolyte of the Senate’s dean of deregulation, Phil Gramm, who once derided Americans as “a nation of whiners.” McCain also seemed to have few new ideas of his own about how to address the financial panic.

More than a year after the election, the Arizona Republican is looking to repair that reputation by joining up with Democratic firebrand Maria Cantwell to propose something that will be anathema to both Wall Street and the Obama administration. According to two congressional sources, the two maverick senators want to reinstate Glass-Steagall Act, the Depression-era law that forced the separation of regular commercial banking from Wall Street investment banking. The senators’ proposal echoes a failed amendment introduced in the House last week by Rep. Maurice Hinchey of New York.

The Senate prospects for the success of the McCain-Cantwell bill—which the two plan to announce together on Wednesday morning—seem bleak at best. But McCain and Cantwell join a still small but not insignificant insurgency of chronic doubters, including former Federal Reserve chairman Paul Volcker, who say not nearly enough is being done to change Wall Street and, in particular, to address the “too big to fail” problem. The issue is one of the few in Washington that can unite the left and right sides of the political spectrum. Democrats like Cantwell deplore Wall Street’s outsize role in the real economy and its lobbying influence, and conservatives such as McCain are appalled at the way the market system has been undermined—some would say rigged—by the power of the big banks.

By proposing a bill to reinstate Glass-Steagall, McCain and Cantwell are going well outside the usual D.C. thinking on financial regulation. An anonymous Treasury official, for example, is quoted in the article as saying, “I think going back to Glass-Steagall would be like going back to the Walkman.” Bringing back Glass-Steagall is something that has made a lot of sense to the grassroots and former officials who are no longer in power, but it hasn’t really found much support among people that are currently in positions of power in D.C.

There’s always more to the story than campaign contributions, but in cases like this it’s hard not to take a look. According to, in 2008, financial firms gave an uncommonly large amount of money to the campaigns of current members of Congress. Included in their list of top ten recipients for this year are such powerful senators as Senate Democratic Caucus Vice Chairman Chuck Schumer [D, NY], Majority Leader Harry Reid [D, NV] and Banking Committee Chairman Chris Dodd [D, CT].

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  • spender 12/15/2009 7:34pm

    Two things come to mind:
    1) Would the reinstatement of Glass-Steagall end the securitization of consumer debt (mortgages, credit cards, school loans, ect.)? It seems to me that as long as average people’s debt can be bundled and sold to investors, we’ll always be tied in with high finance to some degree. (That’s a serious question. Does anyone know the answer?)

    2) I wonder if this is all a big f-you from McCain to Wall Street for pumping so much money into the Obama campaign. McCain probably doesn’t expect it to go anywhere; it just reminds Wall Street that he’s still a Senator, and they shouldn’t screw with him.

  • Comm_reply
    vg0va3 12/17/2009 3:20am

    I would think that even with the reinstatement of Glass-Steagall securitization will continue to occur. It was done well before GLB.

    From the post: Why Glass-Steagall matters and why it doesn’t

    “The original purpose of Glass-Steagall in the ‘30s was to insure that depositors’ funds in a commercial banking unit were not used for speculative purposes by an investment bank.”

    To continue reading:

  • BenjaWiz 12/16/2009 5:38am

    Spender no doubt lol

  • bmc 12/16/2009 7:19am

    Bill Clinton’s pen caused a lot of trouble…GO McCain

  • dbeltramo 12/18/2009 2:00am

    Re-instatement of Glass-Stegall is a GOOD START, but there’s much more to do to insure that main street is never again at the mercy of Wall Street, i.e., tightening up SEC regs that protect consumers from greedy brokers; precluding brokerage firms from forcing people into arbitration instead of court; loosening the stranglehold the American Bar Association has on lawyers, which prevent main street Americans for affording legal help to combat things like foreclosure. I wonder if McCain would be willing to back up his “reinstatement” bid with a few of these additional protection (Ha! I think the answer to the is sadly very clear!)

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