By Radical Freelance, Esq.

Now that Democrats are Republicans are Democrats, the most important political divide of American life is the one that separates critics of kleptocracy from its agents and defenders. But corporatist propaganda hides this divide, giving cover for the takeover of government by thieves. Way too much disinformation obscures the current debate over phony reform or "FinReg," as Obama’s media flacks like to say. Indeed, promulgation of the term FinReg itself is one good sign of propaganda in progress. Another indicator of kleptocratic bullshit can be found by means of a simple Glass-Steagall Test: honest regulators and real critics of kleptocracy want it back; the thieves in power and their apologists want us to forget about it.

As the whole blogosphere knows, The Glass-Steagall Act forced banks to choose between being a commercial bank or investment house. During the Clinton regime, the despicable Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act of 1999) allowed commercial banks, investment banks, securities firms, and insurance companies to merge. Frontline relates The Long Demise of Glass-Steagall that climaxed with the Citigroup-Travelers merger, effectively decriminalized by FSMA.

So the final vote on Gramm-Leach-Bliley was a gutcheck that most Senators failed. The eight noble naysayers deserve high honors and praise:

  • Barbara Boxer (D, California)
  • Richard H. Bryan (D, Nevada)
  • Byron Dorgan (D, North Dakota)
  • Russell D. Feingold (D, Wisconsin)
  • Tom Harkin (D, Iowa)
  • Barbara A. Mikulski (D, Maryland)
  • Richard Shelby (R, Alabama)
  • Paul Wellstone (D, Minnesota)

Paul Wellstone was right:

Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis….Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring. Now Congress is about to repeal that economic stabilizer without putting any comparable safeguard in its place.

Let’s see who wants to end the rule of thieves and bring back Glass-Steagall, and who dont.

Janet Tavakoli says bring back Glass-Steagall:

It worked until it was eroded over several decades by bank lobbying. Banking and speculative trading activities—even when done for “customers”—don’t mix.

Karl Denninger says bring back Glass-Steagall:

A FULL re-instatement of Glass-Steagall – not some watered-down piece of legislative trash, but the real deal – will prevent the economic meltdown we are in the middle of from ever happening again.

Tyler Durden says bring back Glass-Steagall:

Any attempt at fixing Goldman must begin with reinstating Glass-Steagal – period. Anything and everything else is smoke and mirrors.

Nomi Prins says bring back Glass-Steagall:

Bringing back Glass-Steagall would force a distinction of commercial banks with access to federal support from those that just call themselves banks, but are in reality Wall Street gambling parlors. …True systemic risk reduction requires dividing out all trading activities from within a firm that also does deposits and lending. That requires a resurrection of a true Glass-Steagall barrier, not a bunch of stuff that sounds like it gets partly there.

Who wants Glass-Steagall to stay buried?

Paul Krugman, for one. Apparently the housing crash gave Krugman a bad case of Glass-Steagall-amnesia. Krugman often and gladly rebukes shadowy abuses by the "shadow banking system" but is rarely able even to whisper the words Glass and Steagall, as this twisted history of deregulation from March 2008 shows. Read it and see: the size of Krugman’s mental block is suggested in his slavering citation of Goldman Sachs-Citigroup-Bankster Robert Rubin as "the former Treasury secretary."

Some things don’t change. When Krugman says "Don’t Cry for Wall Street" he means, "Reform Away, Just Never Mind About that Glass-Steagall Stuff."

In the build-up to FinReg, Krugman commended David Leonhardt’s article in the New York Times Magazine, "Heading Off the Next Financial Crisis" as

...a very good overview of the issues.

But for Leonhardt, reviving Glass-Steagall is not much of an issue:

The root of the crisis, then, came not so much from the laws that were changed. Finance evolved, and Washington did not keep up. So the creation of another quiet period probably cannot revolve around restoring old rules.

What?! I’m no finance wizard, but it looks to me like the laws were changed by hired thugs for the benefit of thieves, in order to set up just the kind of plunder and pillage that resulted. You don’t have to be a Nobel Prize-Winning Economist like Krugman to see the root of the crisis in the gutting of Glass-Steagall. Dutiful to a fault, Leonhardt eventually gets around to describing the Volcker Rule as a temporized version of Glass-Steagall. But the Volcker Rule, says Leonhardt, mainly aims to keep banks from speculating with taxpayer subsidized loans, and "the subsidy is not what caused the crisis." Thus does David Leonhardt obliterate the not-so-ancient history of legalized looting. Turns out, "Heading Off the Next Financial Crisis" means "Heading Off Reinstatement of Glass-Steagall."

Leonhardt’s tepid treatment of the Volcker Rule foreshadows the probable fate of Glass-Steagall in the coolly pragmatic world of FinReg. Evil Republicans will get the blame, but was the White House of Summers and Geithner, not to mention "the ever-servile corporate factotum Joseph Biden," EVER serious to begin with?

But wait! Among various proposals to "Toughen Wall Street Reform on Senate Floor" Ryan Grim reports that

Sens. Maria Cantwell (D-Wash.) and John McCain (R-Ariz.) will make an effort to reinstate Glass-Steagall.

Emboldened by we the people, Cantwell and McCain say bring back Glass-Steagall. Congratulations, you pass The Test.

Larry Summers, Tim Geithner, Paul Krugman? Failures, all.

O, how I would love to see Cantwell and McCain win the day. Yes, Win One for Paul Wellstone! Defeat the Kleptocracy!

Ok, back to the real world, and a prophecy. Soon very important and influential and totally pragmatic persons will be urging refined appreciation of low and still lower expectations. And ye shall know the end is nigh, when FinReg bloggers start humming the perfect is the enemy of the good. In that day Glass-Steagall will be the new Public Option–which is to say, dead and gone.

Scott Norsworthy

Scott Norsworthy