Tags: Reich | Big | Banks | Broken

Robert Reich: Big Banks Need to Be Broken Up

Tuesday, 22 May 2012 12:32 PM

The United States needs to resurrect legislation that would break up large financial institutions by preventing investment banking and commercial banking from operating under one roof, says Robert Reich, former Labor Secretary under President Bill Clinton.

Under Clinton himself, the government repealed the Glass-Steagall Act, a move that allowed financial institutions to run both investment-banking units and commercial banks.

Current financial reforms such as the Volcker Rule, which would prevent banks from making trades in capital markets with their own money, might not be enough.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

JPMorgan, which lost $2 billion in a recently botched trade, was arguably hedging and not trading for gain, which would make the Volcker Rule somewhat toothless when dealing with big banks.

The Volcker Rule has been approved by Congress but not yet implemented.

"The Volcker Rule is hopeless. It was intended to be Glass-Steagall lite — a more nuanced version of the original Depression-era law that separated commercial from investment banking," Reich writes in a New York Times blog.

"But JPMorgan has proven that any nuance — any exception — will be stretched beyond recognition by the big banks. So much money can be made when these bets turn out well that the big banks will stop at nothing to keep the spigot open," adds Reich, now a professor of public policy at the University of California at Berkeley.

"There’s no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate," says Reich, who served in three national administrations.

Some say bringing back Glass-Steagall won't do much.

The law won't prevent banks from making iffy loans, which caused the housing bust and ensuring recession in the first place.

"The banks made bad loans in 2008," Peter Wallison, general counsel for the Treasury Department under President Ronald Reagan, tells National Public Radio.

"They have always been permitted to make loans; Glass-Steagall had nothing to do with whether they make loans. That's what banks are supposed to be doing."

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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Tuesday, 22 May 2012 12:32 PM
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