For Financial Reform, Reinstate Glass-Steagall Act

May 12, 2010 04:47 PM ET | Bonnie Erbe | Permanent Link | Print

By Bonnie Erbe, Thomas Jefferson Street blog
The single most important thing the U.S. Congress could do to return stability to the stock and derivative markets would be to restore the Glass-Steagall Act. I have said that before and I’ll say it again, right here. Glass-Steagall, in simple terms, prevented commercial banks from investing in risky financial paper, such as the stocks, futures and derivatives that got Wall Street into big trouble in September of 2008.
Now, the U.S. Senate, as it wends its way through a financial reform bill, is going to take a vote on restoring the essence of the Glass-Steagall Act to federal law. I just interviewed Washington Democratic Sen. Maria Cantwell for my PBS program, To the Contrary with Bonnie Erbé. Cantwell told me the Senate will vote on restoring Glass-Steagall either this week or next. She is pretty confident it will eventually become law, although she says it might be a two-step process, restoring part of the act now or soon, and other parts later.

This is great news, especially coming a week or so after the stock market mysteriously dropped one-thousand points for no apparent reason. That drop probably had more to do with computer program trading than anything else. But it sent shivers through financial markets worldwide. As long as your financial institution can invest your savings or checking funds in stocks, you’re at greater risk of losing those funds. If Glass-Steagall is reinstated, those risks virtually vanish. There’s a reason Glass-Steagall was passed in the wake of the Great Depression. Banks spent 70 years trying to get it revoked and finally won Congressional support toward the end of the 20th century. Early into the 21st century, we had another stock market crash. See a pattern? I hope you do.