Finally, Barack Obama today unveiled a proposed major curb on Wall Street that would revive the “spirit of Glass-Steagall” — the Depression-era law that would have prevented last year’s Wall Street meltdown if it hadn’t been abolished during the Clinton administration.
In fact, new firewalls would separate commercial banking from investment banking, preventing banks from recklessly gambling as much and as often with the money they’ve raked in from Americans’ deposits and mortgage payments.
We’re not talking about the rigorous separation of commercial banking from investment banking that the Depression-era Glass-Steagall Act demanded until it was in effect erased by Bill Clinton. Obama advisers like Larry Summers also worked hard to get rid of Glass-Steagall.
But now, seemingly in electoral desperation, Obama has chosen to follow Paul Volcker‘s advice instead. Details aren’t yet known, but just the new Obama plan’s general outline calls for a big shift in how Wall Street currently does business. It would in effect re-criminalize the unholy alliances and connections that allowed monumental consolidation of banks and let them gamble with our money and mortgages in ways that for decades had been highly illegal.
What does Wall Street think about this? See “Goldman Pans Glass Steagall 2.0.”
Initial odds on passage of such a sweeping new set of laws and regulations? Slim to none. But the Democrats are hoping it sounds good to voters, especially in the wake of the GOP’s new 41-59 Senate majority (as my colleague Roy Edroso put it yesterday).
No matter what the details of the president’s new plan are, it’s a hell of a lot more drastic than the weak sister he put forward last summer.
Obama’s finally following the advice of Volcker, the ancient ex-Fed chairman. Obama paraded Volcker before the populace a year ago as a key adviser, but Obama almost immediately cut him off at the knees, his advice ignored.
With the Democrats in a panic over defeats in New Jersey and elsewhere and, most recently, the GOP’s capture of Ted Kennedy‘s Senate seat in Massachusetts, Obama and other Dem leaders had to try something to show voters ahead of this year’s midterm elections that they want to change things.
Wall Street’s investment banks that play with money (like Goldman Sachs) and commercial banks that hold most of Americans’ deposits of money (like Bank of America) will do more than howl. They will fight these proposed regulations and laws with every fiber of their being.
A partial explanation of the Obama’s proposal, as the WSJ puts it: