Donald Trump’s Top Economic Advisor Wants to Reinstate a Crucial Banking Law that Bill Clinton Repealed
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The Banking Act of 1933—more commonly known as Glass Steagall—consisted of four provisions designed to separate commercial banking and investment banking. It was implemented as one of the core lessons learned from the Great Depression, and the legislation put a stop to investment banks like Merrill Lynch gambling with your savings account. As one of the last gifts to his friends on Wall Street, Clinton blew a hole in this law and signed the Gramm-Leach-Bliley Act (calling it the Financial Services Moderation Act of 1999), helping to set the stage for the 2008 financial crisis.
The repeal of sections 20 and 32 enabled actions which induced a wave of suffering across the globe, but their absence is a bit overhyped as to their overall influence on the crash of 2008—as they would not have been able to restrict the behavior of the pure investment banks who were responsible for most of the shady lending. Since then, there have been attempts to cover duct tape over the broken windows of one of our best vehicles for banking regulation, like the Volcker Rule, which attempted to step in to the void of section 20.
These two repealed provisions are typically referred to as the “banking firewall”—as they are the last barrier counteracting the natural inertia between traditional banking and investment banking. Section 20 stopped banking entities from using your savings to gamble on their bets, and section 32 took those restrictions down to the officer, director and employee levels. The other two portions of Glass-Steagall—sections 16 and 21—are still in place, and they regulate acceptable activities for banks. So when you hear that Bill Clinton repealed Glass-Steagall, that’s not technically true, he just removed half the legs from a table that some of our most vital banking regulations rest on. This was bad policy driven by a pure money grab from our True Masters on Wall Street, and Donald Trump’s chief economic advisor reportedly wants to put a stop to the madness.
Per Bloomberg:
In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks, said people with direct knowledge of the matter.