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Intensified Glass-Steagall Discussion Beset by Wild Ideas

April 24, 2017 (EIRNS)—The juggernaut of an imminent implosion of financial speculation and the timely introduction of Glass-Steagall bills in both the U.S. House and Senate has catalyzed much discussion, and some action, about how to handle the impending blowout. Today, Sen. Bernie Sanders (I-Vt.), the most popular figure in the U.S. Democratic Party, signed on as a co-sponsor of Senator Warren’s Glass-Steagall legislation S. 881.

In a sound article, "Breaking Up the Big Wall Street Banks is Back in the Headlines," published yesterday, Pam and Russ Martens endorse John Authers’s observation in the Financial Times:

"The continuing yearning for Glass-Steagall shows that the world (not just the U.S.) has not come to terms with the crisis of 2008. Justice has not been seen to be done; remedies to prevent a repeat have not been seen to be applied. Dodd-Frank has failed to instill confidence."

But the Martens say Aurthurs misses the point: Hundreds of trillions of dollars of derivatives sitting on the books of the biggest Wall Street banks would not exist without the insured deposits that provide the credit rating.

The Wall Street Journal features a commentary by Stephen Hessler, a bankruptcy restructuring specialist, on whether changing the U.S. Bankruptcy Code "would be a superior method of resolution for financial companies" while preventing bailouts. He points to the Financial Institution Bankruptcy Act that passed the House earlier this month, to streamline Chapter 11 cases of "systemically important financial institutions" (SIFIs).

American Banker featured a story yesterday, titled, "BankThink: Big Banks will always be too big, Glass-Steagall or not," by Paul Kupiec, a "scholar" from the neocon American Enterprise Institute. It concludes,

"The real ‘too big to fail’ problem is ... from the implicit belief among investors that the government will protect all creditors of large important failing financial institutions, not just insured depositors.... The Glass-Steagall Act of 2017 does nothing to fix the implicit government guarantee problem, and indeed, it would probably make it worse."