Elizabeth Warren defended her 21st Century Glass-Steagall Act on CNBC
Senator Elizabeth Warren (D-Mass.) went into enemy territory and gave an interview to CNBC on the “21st Century Glass-Steagall Act” that she introduced with Senators John McCain (R-Ariz.), Maria Cantwell (D-Wash.) and Angus King (I-Maine). Not to be confused with liberal cousin MSNBC, CNBC is largely a mouthpiece for the banks. Jim Cramer, who famously touted investing in mortgage backed securities shortly before they tanked the economy calls CNBC his television home. The lean of CNBC’s anchors is clear from how they question Senator Warren. Watch them try and fail to box in Warren as some kind of starry-eyed liberal, and I’ll provide some context on the Glass-Steagall Act.
The Glass-Steagall Act was signed in 1933 by President Franklin Delano Roosevelt as the centerpiece of new regulations in response to the financial crash of 1929 and the ensuing Great Depression. What Glass-Steagall did was to separate commercial banks from investment banks. So, if Citibank wanted to put billions of dollars in hedge funds, it had to have a company separate from the one that manages your checking account. That doesn’t mean that funds could never transfer between the two, but it does mean that certain protections would be in place so that checking and savings accounts would be protected by regulations that the commercial side of Citibank would have to follow.
In 1996, Bill Clinton struck down the Glass-Steagall Act in a move that is up there with DOMA as one of his worst mistakes. Removing the barrier between investment and commercial banks meant that banks could leverage the money that they had access to through checking and savings accounts to make bets on the stock market. As you may have noticed in 2008, some of those bets went horribly wrong all at once. There’s a lot more to the story, but Glass-Steagall helped keep banks from getting too big to fail by walling off their investment (read: betting) arm from their commercial side. Elizabeth Warren's bill is mostly about undoing that damage (a fact CNBC anchors don't know or willingly ignore).
There’s one more important piece of the puzzle: big banks are insured by the government-run Federal Deposit Insurance Corporation (FDIC) which essentially means that if the banks tank, the government will back them up so that at the very least, people can withdraw their money. The promise of this insurance encouraged banks to take enormous risks: huge payout if they win, the government catches them if they fail. What the old Glass-Steagall Act and Warren's bill say is that if you get the privilege of FDIC insurance, you also need to act within certain soberly drawn lines.
The U.S. really needs the 21st Century Glass Steagall Act. It has little chance of passing, because big banks have too much political clout, which they build through campaign donations, lobbying and networks like CNBC who defend them at every turn.