The latest edition of Recovered History by the Progressive Review is worth a look. It features a March 26, 1999 New York Times story about the passage of a banking deregulation bill that repealed the 1933 Glass-Stegall Act. The whole story is a must read, but here are a few highlights.
The decision to repeal the Glass-Steagall Act of 1933 provoked dire warnings from a handful of dissenters that the deregulation of Wall Street would someday wreak havoc on the nation’s financial system. The original idea behind Glass-Steagall was that separation between bankers and brokers would reduce the potential conflicts of interest that were thought to have contributed to the speculative stock frenzy before the Depression. . .
Here’s what then Treasury Secretary Larry Summers said at the time.
Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century. This historic legislation will better enable American companies to compete in the new economy.
How’s that working out for us, Mr. Summers? Only eight Senators voted against the deregulation of the financial world. One of them was Sen. Byron Dorgan, who seemed to know what he was talking about and even had the time frame right.
I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930’s is true in 2010.
One more comment at the time from another Senator with the good sense to vote against the proposal, the late Paul Wellstone.
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.
The folks on Wall Street and in Washington can’t say nobody warned them.