On Friday, The Wall Street Journal editorial page joined such noted left-wing radicals as Alan Greenspan, John McCain, and Paul Volker in support of restoring the barrier between commercial banks and investment banks which did so much to prevent economic meltdowns between the 1933 passage of the Glass-Steagall Act and its repeal in 1999 by a bipartisan coalition of Congressional Republicans and Clinton Democrats led by Robert Rubin and Larry Summers.
In an editorial (also opposing the Obama administration's proposed bank tax), The Wall Street Journal wrote:
"A better idea is to do the hard policy work of creating a plan that...separates traditional banking from hedge-fund trading, as Bank of England Governor Mervyn King and former Federal Reserve Chair Paul Volker have suggested."
In December, the unlikely pair of John McCain and Washington Democratic Senator Maria Cantwell announced the proposed McCain-Cantwell bill which would restore Glass-Steagall's wall between commercial banks and investment banks.
Others who have supported such a move include former Fed Chairmen Paul Volker and Alan Greenspan (who before finding a small "flaw" in his theories that unfettered free markets were self-regulating, teamed with Clinton Treasury Secretaries Rob Rubin and Larry Summers and McCain campaign economic advisor and then Chair of the Senate Banking Committee Phil Graham in leading the '90s charge to repeal Glass-Steagall). But following on the heels of the biggest financial meltdown since the Great Depression, Greenspan told the Council on Foreign Relations last October, that the government should consider breaking up the big banks:
"If they're too big to fail, they're too big. In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that's what we need to do."
During the 2008 election campaign, Barack Obama often used the endorsement of Paul Volker, Greenspan's predecessor as Fed Chairman, to lend himself credibility as a leader capable of handling the financial crisis, often positioning the 6'8" Volker next to himself at press conferences on the economy. Obama appointed Volker as Chairman of the largely ceremonial White House Economic Recovery Board, where, according The New York Times, Obama has marginalized him and ignored him. Volker has been one of the strongest voices for separating commercial and investment banking:
"As a general matter, I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e. taxpayer) financial support, certain risky activities entirely suitable for our capital markets. Ownership or sponsorship of hedge funds and private equity funds should be among the prohibited activities. So should in my view a heavy volume of proprietary trading with its inherent risks."
Volker told The New York Times,
"People say I'm old fashioned and banks can no longer be separated from nonbank activity. That argument brought us to where we are today."
So what is the Obama administration's reaction to the proposals of its campaign's erstwhile economic guru? An anonymous spokesperson from Obama's Treasury Department stated,
"I think going back to Glass-Steagall is like going back to the Walkman."
Newsweek reports that opposition from the Obama administration makes "Senate prospects for the success of the McCain-Cantwell bill...seem bleak at best." According to Newsweek,
"Obama administration officials have dismissed the idea that the financial sector should or can be changed in more fundamental ways than they are now proposing. You can't turn back the clock, they say."
Such far-left radicals as Greenspan, Volker, McCain, and The Wall Street Journal now think we can and must turn back the clock. Of course Obama's chief economic advisor is Larry Summers who was one of the chief architects in repealing Glass-Steagall. Is Obama's reliance on his advice leading him and the Democrats towards disaster?
If, a year after Obama's victory, the Senatorial race to replace Ted Kennedy is close, it can largely be attributed to public disillusionment that Obama and the Democrats have given away too much taxpayer money to Wall Street banks and have gotten almost nothing in return in terms of increasing lending to job-creating businesses, or modifying mortgages to help ordinary Americans stay in their homes. This allows Republicans to play the role of faux populists. As I recently wrote in The Huffington Post:
"If the only political choice given to American voters is using the government to subsidize wealthy corporations, or the Republican message of smaller government and cutting their taxes, many who voted for Obama will return to the seemingly brain-dead Republican Party."
Whatever the outcome in Massachusetts, we can already see this Republican resurrection happening before our eyes. Obama's newfound populist rhetoric this past weekend--slamming the big banks for their "selfishness" and making a modest proposal to tax them a total of $90 billion over 10 years (while they pay out over $200 billion in bonuses in one year)--which proposal is opposed by Massachusetts Republican Senatorial candidate Scott Brown, may (or may not) be enough to help Democrat Martha Coakley sneak by.
But it's going to take a much more drastic break from the policies of Wall Street to save Obama's Presidency and the Democrats' chances in the 2010 election, as well as to protect the American taxpayers from again being called upon to bailout the "too big to fail" banks from the next financial bubble which is already forming.
As prairie populist and retiring North Dakota Democratic Senator Byron Dorgan--one of a handful of principled Democrats who stood up to the gang of Clinton, Summers, Rubin, Greenspan and Graham and opposed the repeal of Glass-Stegall--warned in 1999, a "financial swamp" would be the result of merging banking with speculative, casino-like activities of investment banking and hedge funds:
"I think we will look back in ten years' time and say we should not have done this but we did because we forgot the lessons of the past, and that which is true in the 1930s is true in 2010. We have now decided in the name of modernization to forget those lessons of the past, of safety and soundness"
Obama must overrule the self-serving advice of Summers, and the outsized financial contributions of the Wall Street lobby promised to Rahm Emanuel, and move to break up the concentrated power of the big banks, as even Volker, Greenspan, McCain and The Wall Street Journal urge him to do. If not he will fast become a failed President faced with an increasingly hostile Republican House and Senate.