Perhaps the time has come to re-think the repeal of the Glass-Steagall Act which created barriers between commercial banking and investment banking?
Here’s the how the final vote went for the Gramm-Leach-Bliley Act, which President Bill Clinton signed into law in 1999, and which several economists and politicians are pointing to as a cause of the financial meltown late last year. As Dealbook notes, AIG and Citigroup would not have run into trouble but for the repeal of Glass-Steagall.
In the Senate, Blanche Lincoln (D) voted against the bill; Tim Hutchinson (R) voted for it. In the House, all four Arkansas congressman (2 Democrats, 2 Republicans) voted in favor of the bill.
With then-Texas Sen. Phil Gramm (of “whiner” fame) as the lead sponsor, the virtue of the bill automatically comes into question. At least Ms. Lincoln recognized it.
And I wish President Barack Obama would act on his campaign rhetoric on the subject.
The Commodity Futures Modernization Act of 2000 also is largely to blame for AIG (and Enron), since it ensured that credit default swaps and other OTC derivatives would be free from regulation. Sen. Gramm is widely credited with those provisions.
A bill entitled the “Over-the-Counter Derivatives Markets Act of 2009” has been proposed in Congress, which is intended to address these issues.