"I’m suggesting the big banks be broken up so that the taxpayer will
never be at risk, the depositors won’t be at risk and the leverage will
be something reasonable."
Aziz: This from the guy who provided the impetus and the funds to end
Glass-Steagall? Totally absurd — akin to Joe Stalin renouncing
Marxism-Leninism and the gulag archipelago on his deathbed.
Glass-Steagall’s separation between depository and speculative
institutions — especially during the Bretton Woods period — was a
relatively robust system; there was never a large-scale banking calamity
of the nature of 2008 or 1929 under its regime. Certainly, it had its
imperfections — above all else that it never prevented bankers like
Weill from chipping away at it up to the point of repeal — but the proof
of the pudding is in the eating, and Glass-Steagall presided over a
period of growth and stability.
While the data tends to show that the end of Bretton Woods in 1971
was the real catalyst of the financialisation, globalisation,
deindustrialisation and debt buildup that ultimately flung the US into a depressionary deleveraging trap, the end of Glass-Steagall was profound.
Depositors’ funds became a medium for the creation of the huge and sprawling shadow banking and derivatives webs.
The blowout growth in shadow banking was presaged by the end of Glass Steagall in 1999:
And the slow contractionary deleveraging of shadow banking has been a
significant force in keeping the economy depressed since 2008. Any
contrition on the part of Weill for his role in repealing Glass-Steagall
might as well be an attempt to close the stable door after the horse
has bolted. It’s like trying to uninvent the atom bomb after Hiroshima.
Weill was the guy who — above anyone else — was responsible for the
damage done.
Coming out and claiming that reimposing Glass-Steagall would fix the
problem is inadequate. If he wants to be taken seriously he should match
every dollar he spent trying to get Glass-Steagall repealed with new
lobbying funds to reimpose a separation between banks that accept
deposits and the shadow banking and derivatives casinos.
Beyond that, I think that this is very telling. The financial
institutions will do anything to avoid the ultimate free market solution
— the disorderly liquidation of the system they created via default
cascade. If high-ranking members of the financial elite are willing to
talk about reimposing Glass-Steagall, they must be seriously concerned
that the system they built is getting dangerously close to
self-destruction.
Aziz
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