“There are huge benefits to size. We bank Caterpillar in like 40 countries. We can do a $20 billion bridge loan overnight for a company that’s about to do a major acquisition. Size lets us build a $500 million data center that speeds up transactions and invest billions of dollars in products like ATMs and apps that allow your iPhone to deposit checks. We move $2 trillion a day, and you can see it by account, by company. These aren't, like, little things. And they accrue to the customer. That’s what capitalism is.”First off, let's cite the irony of a bank's CEO who had to receive a bailout exhorting to us as to what capitalism is. The absurdity of that statement alone should be a call for alarm and remind us that the banks have simply lost their right to speak on this issue. When Glass-Steagall was repealed in 1999 (via the Gramm–Leach–Bliley Act), the banks received everything they wanted in deregulation. They were able to become a one-stop shop, bringing investment and commercial banking under the same roof. From the business aspect, this was a great financial boon as they were able to offer a more diverse portfolio of products to their customers. However, it also struck down the barriers that kept many banks separate and thus allowed for a succession of mergers and acquisitions which created the massive banks we have today. Now you can argue such government statutes as the Community Reinvestment Act only rewarded already bad behavior, and I would agree with you. However the question remains as, if that law was so unpalatable to the banks, then why didn't they focus their lobbying power on repealing it instead of Glass-Steagall? Therein lies the rub.
As we all know from the 2008 Subprime Mortgage Crisis, having these large banks largely self-regulate turned out to be a bad idea. But let's go before that. The banking history of the United States has always been a tumultuous one and banks conducting themselves unethically with economic repercussions following in turn is nothing new. The bank panics of 1819, 1825, 1837, 1857, 1873, 1893, 1907 go on to prove that. There are some prominent ones among them. Andrew Jackson, along with many Americans, lost money in the panic of 1819 which sowed the seeds of his hatred for the banks.
The 1907 panic, in which JP Morgan himself was also a big player in, resulted in the creation of the Federal Reserve System. From there we have the Stock Market Crash of 1929 and the Great Depression, which stemmed from bubbles bursting during a time of intense speculation and unethical actions on behalf of Wall Street. The implementation of Glass-Steagall followed suit in 1933. The result was to be, between 1933 and 1999, the most stable banking period in the history of the United States. Sure there were the economic woes in the early eighties followed by the crash in 1987, but things did not spiral out of control as they did in 2008.
Just by looking objectively at the issue, history does not favor Jamie Dimon's argument. We tried deregulation of the banks and it failed miserably. To add insult to injury, the half-baked attempt to regulate the banks post-2008 remains largely unimplemented, the bill known as Dodd-Frank. Naturally the bill's two authors leaving congress soon after its passing didn't help the implementation of it and Barnie Frank was an impediment to auditing Fannie and Freddie before the crisis. Let's not even get into the irony of Frank slapping his name on the bill after blocking such regulations earlier. The great thing about Warren and McCain teaming up is that it is a bipartisan effort, something lacking in today's politics. A bipartisan effort to fix a bipartisan problem, as Glass-Steagall was repealed by a Republican congress and Democratic president.
If we want to consider ourselves a modern, advanced society, we need to approach issues along the lines of an objective evaluation of history and the facts and data provided within. The results of such an evaluation demand something be done about the banks, regardless of party affiliation. Now perhaps the bill presented by Warren and McCain might not be the best way to go about it, as is illustrated in a great piece by the Washington Post's Dylan Matthews, but at least it starts a discussion.
However, if you are still skeptical about all this, the pièce de résistance of the argument for logical regulation of the banks lies within the mind of the architect of Glass-Steagall's very demise, Sandy Weill. In a 2012 interview with CNBC, the famed Wall Street trader opined:
“What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.”Quite the surprising comment coming from the guy who had "The Shatterer of Glass-Steagall" engraved on a placard and placed on his wall, as if some hunting trophy. If such a profound about-face does not illustrate the dire need to implement sound banking regulations in spite of partisan politics, then nothing will.
Refences:
http://www.forbes.com/sites/halahtouryalai/2013/07/11/elizabeth-warren-hits-big-banks-where-it-hurts-new-bill-would-restore-glass-steagall/
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
http://www.nytimes.com/2008/10/24/business/economy/24panel.html?_r=0
http://www.cnbc.com/id/100906282
http://www.youtube.com/watch?v=JuXMXmqSHnc
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/12/elizabeth-warren-and-john-mccain-want-glass-steagall-back-should-you/
