After the catastrophic banking crash that led to the Great Depression, the United States passed some laws to make sure the same thing never happened again. Chief among them was the Glass-Steagall Act, or the Banking Act of 1933. This law required that investment and commercial banks be kept separate. What’s the difference between the two? Well, pretty much everything. Investment banks gamble (legally, mostly) with investor money, playing the odds on Wall Street and trying to generate return on investment for their investors. Commercial banking, however, is what most of us think of when we think of banks. A commercial bank accepts deposits from average everyday people, who store their money with the bank because they have faith that keeping it in the bank is safer than keeping it under their mattresses. The commercial bank then turns around and makes loans to other everyday people, so that we can buy houses, cars, education, or anything else too expensive to afford out of pocket. That’s pretty much the primary way a commercial bank generates revenue: collecting interest on those loans. In turn, this allows everyday people to put their money in savings accounts, and collect interest of their own. The bank has confidence that you won’t withdraw all your money all at once (because it’s all your savings!), so they can lend that money out and collect back an even bigger sum in little monthly intervals.
But here’s the problem: these two kinds of bank had merged in the “roaring twenties,” because it was more profitable that way. A combined investment/commercial bank would use depositor money as collateral to back up its massive, risky bets on Wall Street. In other words, the banksters would gamble with depositor money—yours and mine. The balance of your bank account was just a pile of poker chips to be placed on a stock the bank was hopeful about, and if they were wrong, well, it wasn’t their money in the first place. Think about it: if you were gambling with someone else’s money, wouldn’t you take more risks than you would with your own life savings? These banks did. And their risky speculation crashed the entire world economy. (Sound familiar?) When the investment banks went under, they took the commercial banks with them, which meant that basically everyone lost their life savings overnight. The banks just didn’t have the money: they had bet it all and lost. When average citizens all went en masse to withdraw their money, they were met with locked doors.
Obviously, that’s a pretty awful outcome. In the aftermath, the Glass-Steagall Act (named for the legislators who co-sponsored it) was passed to prevent investment banks from gambling with depositor money ever again. Sure, if someone gave them money and specifically said “Here, invest this for me,” they could gamble with that; it wasn’t as though they made investment banks illegal. All this law did was prohibit those investment bankers from also setting up commercial banks, luring the common folk into depositing their money, and then gambling with our life savings on risky Wall Street financial bubbles. Nothing could be more reasonable.
And so, of course, it was repealed in 1999.
At the time, Senator Russ Feingold (D-Wisconsin) warned that getting rid of Glass-Steagall would lead to massive destabilization of the world economy by the boom and bust cycles of the investment banking industry, but his protests were drowned out by the enthusiastic endorsements of the vast, corporate-owned majority in both the Senate and the House. And in a few short years, the world economy was pulverized by the worst economic collapse since the Great Depression. We are still living through it now. But here’s the worst part: nothing has actually been done to fix the underlying problems that allowed that collapse in the first place. You think things are bad now? The entire world economy is just a ticking time bomb, waiting to explode at any moment and send us into a downward spiral that may end up being worse than the original Great Depression.
That’s why it’s so important that Elizabeth Warren, the Democratic Senator from Massachusetts, is finally reintroducing a revamped, reinvigorated version of the 1933 Banking Act, the Glass-Steagall Act, that gave us fifty straight years (1933-1983) without a single banking crisis, let alone a global economic collapse. Not only that, but she has co-sponsorship from across the aisle, even including former Republican Presidential candidate John McCain (R-Arizona). Resurrecting Glass-Steagall is possibly the single most important legislative step that can be taken to fix the catastrophically unstable financial system we have today. And it’s certainly far and away the best legislative step that’s actually being proposed by actual legislators.
So, what can you do about it? Well, you can start by heading over to Elizabeth Warren’s website and signing her petition to the rest of Congress. You can also find a similar petition on the Bold Progressives website, where over 157,000 people have already signed. And even more importantly, you can spread the word about Elizabeth Warren and her bold efforts to genuinely bring us common-sense, desperately needed financial reform. This is the kind of bill that shouldn’t even need to be debated; it should pass unanimously. Of course, because virtually every legislator in Washington is deeply and irredeemably corrupt, it stands very little chance right now. But that’s why we, the people, need to be scoring this vote. Anyone and everyone who votes against Elizabeth Warren’s new banking bill will officially be showing us their true colors. They don’t represent us, they represent the moneyed interests who bought their votes with campaign donations. And when our representatives no longer represent us, it’s time to find new representatives.