Tuesday, January 5, 2016

Why Glass-Steagall can work

Almost since RtO started in early 2008, I have been calling for a restoration (and modernization) of the Glass-Stagall Act, which was the primary regulation that kept American financial mrkets stable for 60 years, despite the incompetennce of the people who managed them.

(I describe myself as a New Dealer,  and Social Security Insurance and Glass-Steagall are the primary reasons.)

Now Senator Sanders has made a modern version of G-S a plank in his platform. H. Clinton and Larry Summers are sniping at him. Note that Summers was one of the worst secretaries of the Tresury in history.

I would hope that the gem of this discussion -- restoration of something that works like Glass-Steagall did -- does not get lost in the maneuvering of the contestants for the presidential nomination. Here is a nice little summary of how and why G-S was and is a good idea.

Professor Hockett uses the musical chairs analogy that I have used so often, and generally his short summary is incisive, except in one respect. It was not AIG's lending that caused the nearly-fatal clog in the financial markets but its insane underwriting of guarantees on swaps. That's a point crucial to understanding why the Bush government responded as it did in October 2008, but not especially relevant to the argument in favor of Glass-Steagall.

A note on the side: Future social historians of the United States are going to have a time describing how 3 men who were almost universally described as the smartest men in politics of their time managed to maintain those reputations despite unbroken records of disasters on a stupendous scale: Summers, Robert McNamara and Henry Kissinger.

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