(Image is from the Facebook page of Senator Elizabeth Warren.)Back in 1933, Congress had a great idea. They thought banks shouldn't be able to invest for themselves using the money of their depositors. In essence, the banks were gambling with money that didn't belong to them -- and when the crash of 1929 happened, a lot of those banks lost that money and went out of business, leaving depositors without the money they had thought was safe in the bank. So the Glass-Steagall Act was passed -- and it worked well for 66 years.
But then the Republicans came back into power, and bowing to the wishes of their Wall Street masters, they repealed the Glass-Steagall Act. This gave the giant banks a flood of new money they could play with (their depositor's money), and they started investing in all kinds of stocks and bonds and those banks grew to a huge size on those trades. The problem was that not all those investments were wise ones, and when the market crashed again, those Wall Street banks faced financial ruin.
Bush & Congress (including too many Democrats) decided those Wall Street banks were "too big to fail", and that their failure would seriously harm the American economy. So they spent $700 billion of taxpayers money to bail them out. After getting back the White House in 2008, the Democrats passed some Wall Street reforms -- but those reforms were weak, and didn't deal with one of the primary problems that led to the market crash and bank troubles (allowing banks to gamble with their depositor's money).
Now the stock market is booming again, and much of it is due to the giant Wall Street banks doing the same things they did that led to the last crash -- creating a dangerous situation that will lead either to the loss of a massive amount of depositor funds or the need for another taxpayer bail-out. But a few senators have decided that enough is enough, and they want to re-apply the law that worked so well in the past.
They basically want to re-institute the Glass-Steagall Act. They would force the giant banks to split into two separate companies -- one that would perform traditional banking functions, and one that would do investing. And the investment branch would not have access to depositor money with which to do their stock market gambling. This would not only protect depositor money, but the new divisions would not be "too big to fail" -- meaning that a bail-out would not be necessary if they screw up again in the future.
The leader of this new effort is Senator Elizabeth Warren (D-Massachusetts), who has shown repeatedly in her short tenure that she puts the best interests of consumers over the profits of the giant Wall Street banks. She has been joined in this effort by Senator John McCain (R-Arizona), Senator Angus King (I-Maine), and Senator Maria Cantwell (D-Washington) -- all of whom should be applauded for this common sense approach to financial reform.
This bill makes a lot of sense, and it is badly needed -- because it could prevent the kind of wild speculation (with other people's money) that led to the last market crash. And that is why Wall Street hates the bill and don't want it to crash. The bill would make those banks gamble with their own money.
Unfortunately, I don't think the bill has much of a chance of becoming law. If the Senate Republicans don't filibuster it to death, then House Republicans will make sure it dies. They sold out long ago to the Wall Street financial interests (who pour big money into their re-election campaigns), and they're not about to make Wall Street have to play by the rules -- in an economic game that is fair to everyone, including depositors and small investors.
