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Hill Column Helps Focus the Wells Fargo Scandal on Glass-Steagall

Sept. 23, 2016 (EIRNS)—Following a Senate Banking Committee hearing on the Wells Fargo cross-selling scandal, which was full of populist sound and fury signifying nothing but an approaching election, The Hill on Sept. 22 fortunately ran Cornell Prof. Robert Hockett’s clarifying piece on "Wells Fargo, Glass-Steagall, and ‘Do You Want Fries with That’ Banking." Hockett made clear what the Senators failed to: That the continuous criminal conduct by the Wall Street megabanks will end only when they are broken up by a restored Glass-Steagall Act.

Hockett emphasized two essential elements of Glass-Steagall regulation, which literally cry out from the Wells Fargo fraud.

First, the commercial banking units of the megabanks have been seized and taken over by the investment bank culture which wants to turn the depositors into "sales points" and the mass of deposits effectively into trading and fees for the investment bank’s account.

"Wells Fargo’s goal was for each of its clients to be sold at least eight of these products. But now ask yourself, how could you possibly buy eight distinct products from your local depository institution? What, beyond a checking account, a savings account, a credit card and perhaps one more item, could these be? The answer ... is that many of the ’other products’ are items that Glass-Steagall prohibited banks from having much, if anything, to do with. These include things like life insurance annuities, more general ’risk management services’ (a term, of course, that embraces derivatives purchases), ’investment advisory’ services, and similar financial products that used to be offered, not by banks or bank-affiliated entities, but by other, more high-end financial firms that Glass-Steagall expressly segregated from depository institutions."

Secondly, the complexity of the universal bank structures, together with their constant attempts to get bigger through trading and cross-selling of structured financial products, has made them impossible to manage. Wells Fargo CEO John Stumpf’s claim of being unaware of the large-scale criminal activity for years after it became a dominant pattern at the bank, can only mean two things. Either he was lying about a large criminal enterprise he had willfully run through the bank; or more likely, he and his top management were not actually managing the huge bank’s activities, because it is too big to manage.

"Does it not suggest, in other words, that institutions like Wells Fargo are not only now too big to fail and too big to jail, but also are too big to manage?"

Hockett wrote.

"It seems to me that Wells Fargo’s own CEO is now committed to this proposition. More importantly, I submit, we should now commit ourselves to the same proposition and reinstate an updated Glass-Steagall regime accordingly."

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