Sens. Cantwell & McCain Lead Senate Effort to Reinstate Glass-SteagallDecember 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 That law is the Gramm-Leach-Biley Act, which repealed a New Deal-era financial regulatory rule known as the Glass-Steagall Act, which was signed into law by FDR to keep regular commercial banks separate from Wall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 The law was repealed in 1999 by Bill Clinton; the pen that signed the law to repeal it is now hanging as a trophy in the halls of Citigroup’s corporate headquarters.
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 OpenSecrets.org, 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].