Gold that should have never been chased

Back in early 2010 when many of us were working to pass financial reform in Congress, we were calling for “banks to be banks not gambling houses” (see my op.eds in The Hill and the Pittsburgh Post-Gazette).

The great recession largely resulted from bank deregulation in the 1990s that repealed the 1933 Glass-Steagall Act that prohibited commercial lending banks from being investment banks.  Instead of making money from loans, banks were now allowed to pursue big profits on Wall Street and big bonuses for their executives by investing bank money and depositors’ money in risky financial bets. It’s called proprietary trading.

Well, we saw how that turned out.  The world’s economy melted in 2008 when the bogus investment vehicles collapsed leaving the greedy banks to come running to Uncle Sam for multi-billion dollar bailouts.
As a result Congress did pass financial reform to try to reign in big banks’ bad behavior and the banks continue fighting the new regulations.

This week Sanford Weill the former CEO of Citigroup, who successfully fought for the repeal of Glass-Steagall—because it was to be great for the nation’s economy—announced that he now supports splitting up investment banking from commercial banking.  “Have banks do something that’s not going to risk the taxpayer dollars, that’ not going to be too big to fail.”

Also this week the editorial board of The New York Times admitted that the paper had made a mistake in advocating the repeal of Glass-Steagall.  “Having seen the results of this sweeping deregulation, we now think we were wrong to have supported it.”

The powerful voices in finance and the media were blinded by the pot of gold at the end of the gambling rainbow, and we all paid the heavy price.

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