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SENATOR ELIZABETH WARREN, SENATOR EXTRAORDINAIRE (PART I)

May 10, 2016

SENATOR ELIZABETH WARREN, SENATOR EXTRAORDINAIRE (PART I)

Senator Elizabeth Warren of Massachusetts, my favorite senator by far, has been rumored to be one of Hillary’s choices for vice president. I am opposed to her running for such office for two reasons: (1) She is far too valuable where she is as the peoples’ chief watchdog over the banking industry (which desperately needs lots of overseeing), and (2) Massachusetts has a Republican governor, who if she took the vice president’s job, would appoint a Republican to her former seat, and if control of the Senate should hinge on that one seat lost, it would be a disaster (see the effects on Supreme Court nominations by President Clinton, treaty approvals, legislative obstructionism etc.).

Senator Warren came to the Senate from the faculty of Harvard Law School and is widely recognized as the world’s foremost expert on bankruptcy. She also understands the history and intricacies of banking and its regulation. In addition to her expertise, she is blessed with an energetic work ethic and a persevering determination to represent those who elected her rather than the interests of Wall Street banks, multinational corporations and others whose interest in profit making does not accord with the interests of America and its people. She is brilliant, hard-working, and knows who sent her to the Senate.

My favorite political magazine, The American Prospect, features an interview with the learned senator in the current quarterly edition. She touches on topics about which I have written dozens of blogs, more specifically on one seeking reinstatement of the Glass Steagall Act of 1933, a New Deal piece of legislation which segregated commercial banking from investment banking so that big banks could not subject American taxpayers to undue risks. Bill Clinton (on the advice of Bob Rubin and Al Greenspan – both with former big banks) signed a repeal of Glass Steagall in 1999 even though the Act operated well from 1933 to 1999, a 66-year period in which we had no significant problems resulting from an admixture of commercial and investment banking in the industry. (He has since admitted that signing the repealer was a mistake, and he was right about that.)

We all know the sordid history of what the big banks did after Glass Steagall was repealed. They became investment vessels who took undue risks (see derivatives and other esoteric instruments) with our money. We also all know how we had to bail them out and what their antics did to our economy (see Great Recession). The repeal of Glass Steagall was, in my opinion, the biggest mistake Bill Clinton made while in office, and our economy is still underperforming as a direct result of this mistake. As I have blogged many times, we need to bring Glass Steagall or its facsimile back to the legislative books with such changes in its language to account for intervening events. We need to strictly segregate commercial from investment banking once again; the big banks told us we could trust them to allocate risk when asking that Glass Steagall be repealed. They didn’t, and the world almost went under.

The interviewer in the magazine article, Robert Kuttner, brilliant in his own right, in discussing what big banks can still do to bring the economy down, asked Senator Warren as follows: “ And meanwhile, the big bucks are also made from the capital market activity , from trading rather than investing?” She replied:
“Yeah, and that’s exactly why we need a new Glass-Steagall Act to break up the biggest banks. Breaking the banks apart would have two profound consequences. First, just to make them smaller. Second, to change a business model that lets giant banks use the low-cost, FDIC-guaranteed funds in grandma’s savings account to fund high-risk activities in the shadow banking market. Right now, giant banks have a big competitive advantage over everyone else in shadow banking and over everyone else in traditional banking. This is how the big banks beat out the community banks even though they often offer an inferior product to consumers.”

The Dodd-Frank Act of 2010 was designed among other things to make the banks use their own money to fund their investment activities that put the taxpayers at risk, but the Republicans in 2014 went along with Citigroup and amended that section of the Act out so that you and I are again subject to bailing out these big banks when they take undue risks with our money. Thanks to Republicans who favor big banks over taxpayers, our FDIC-insured funds are again up for grabs in the derivatives market. Why would Obama sign such a bill? The Republicans in a bit of legislative gamesmanship attached the amendment to a must-pass spending bill, that’s how.

In Part II I will discuss more of the senator’s interview in re what is to be done with Glass Steagall and Dodd Frank and how a handful of wealthy individuals and powerful corporations manipulate the system to benefit themselves. Stay tuned.  GERALD   E

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