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Breaking up the Big Wall Street Banks is Back in the Headlines

In the past two weeks, newspaper headlines have revived the debate on whether the mega Wall Street banks continue to pose a systemic threat to the U.S. banking system and the economy. This is a desperately needed public debate that demands facts – not a revisionist history of what actually caused the 2008-2010 Wall Street collapse and the worst economic downturn since the Great Depression. 

The 1933 Glass-Steagall Act was passed by Congress at the height of the Wall Street collapse and Great Depression. It accomplished two equally critical tasks. It created Federally-insured deposits at commercial banks to restore the public’s confidence in the U.S. banking system and it barred insured commercial banks from being part of a Wall Street investment bank or securities underwriting operation because their high-risk speculative activities frequently blew up the house. That legislation protected the U.S. banking system for 66 years until its repeal under the Bill Clinton administration in 1999 at the behest of Wall Street power players like Sandy Weill of Citigroup. It took only nine years after its repeal for the U.S. financial system to crash, requiring the largest public bailout in U.S. history. 

In a July 2015 column, Cohan ridiculed Senators Elizabeth Warren and John McCain for introducing legislation to restore the Glass-Steagall Act. Cohan wrote: 

“Despite the relentless rhetoric, the fact that commercial banks are in the investment banking business and investment banks are in the commercial banking business had almost nothing to do with causing the financial crisis of 2008.” 

The unassailable facts simply do not support this wild assertion. The largest bank in the country at the time, Citigroup, played the key role in the banking panic. Its share price collapsed by more than 89 percent in 2008, eventually to trade as a 99-cent penny stock. 

Citigroup received the largest taxpayer bailout in U.S. history – much of it initially shielded from public view. 

The U.S. government infused $45 billion in equity into Citigroup and over $300 billion in asset guarantees; the Federal Deposit Insurance Corporation (FDIC) guaranteed $5.75 billion of Citigroup’s senior unsecured debt and $26 billion of its commercial paper and interbank deposits; 

the Federal Reserve secretly funneled $2.5 trillion in almost zero-interest loans to units of Citigroup between 2007 and 2010. And those are just the details the public has been given. It took a multi-year court battle to unleash the details of what the Fed was doing behind a dark curtain.  

In fact, researchers at the agency created under the Dodd-Frank financial reform legislation to monitor systemic risk on Wall Street, the Treasury Department’s Office of Financial Research (OFR), has published data showing that massive concentration of risk and interconnectivity of the largest Wall Street firms is precisely the continuing problem that threatens long-run financial stability in the U.S.

DYI:  The article above provides excellent insight into the Glass – Steagall Act yet falls very short when it comes to the Federal Reserve a private company involved in legalized criminal behavior.  This is a clear cut case of why this central bank monster needs to be slayed by ending its existence.  The Fed’s primary mission is the protection of the New York money centered cartel even at the cost to the American citizens.  It is not and never has been for the protection of the economy or the public at large.

DYI