An Unlikely Sponsor of Legislation We Need: John McCain & 21st Century Glass-Steagall

Maybe nobody was more surprised than I was to hear that Arizona Sen. John McCain teamed up with my hero, Massachusetts Sen. Elizabeth Warren, to sponsor legislation that would rein in our nations bloated “too big to fail” banks.

After all, despite his seniority in Congress and visibility in the 2008 presidential campaign, McCain did damn-all for Arizona residents victimized by those banks’ overzealous foreclosure frenzy. In language typical of the big banks’ spin doctors, he actually had the nerve to blame consumers for the foreclosure crisis – a particularly callous position considering his home state was repeatedly ranked one of the top three hardest hit by the economic crash.

The staff of a hospitalized Rep. Gabrielle Giffords did more for me during my fight with Wells Fargo than the presumably quite healthy McCain despite the fact that I wrote him a very candid letter describing my experience of being strung along over seven months in the bank’s first of several reviews of my loan for modification.

It’s not as if he were a stranger to financial crises – he was one of five senators investigated for his ties with Charles Keating, a key figure in the late 1980s savings and loan collapse. Yet, he went on to establish a reputation for opposing financial regulation.

Perhaps his inaction in the face of the banks’ foreclosure frenzy has something to do with the fact that securities and investment companies remain among his top financial supporters. Which, of course, makes it even stranger that he’d be seen in public with Sen. Warran, let alone co-sponsor legislation that would rein his bankster benefactors.

Whatever his reasons for now siding with supporters of financial reform, McCain gives a pretty comprehensive review of the issue in the clip above. But he’s not  exactly a riveting speaker, more a monotone reader of his notes in this instance. If you want more background on the history of post-Depression banking reform, try this well-written Washington Post blog from 2013: Elizabeth Warren and John McCain want Glass-Steagall back. Should you?

The 21st Century Glass-Steagall will no doubt face stiff opposition by Wall Street and the banking industry. Bank shills rant and gnash their teeth when the subject of breaking up the “too big to fail” banking empires arises. Like McCain, they point their fingers at consumers – those greedy, lazy people who “bought too much house” and then refused to pay their mortgages.

Those few people who made bad financial decisions have to stand in line behind a whole lot of financial services industry insiders when the blame is handed out though. I think hedge fund manager James Rickards gets it right in his 2012 US News op-ed Repeal of Glass-Steagall Caused the Financial Crisis.

“It is true that the financial crisis has enough blame to go around. Borrowers were reckless, brokers were greedy, rating agencies were negligent, customers were naïve, and government encouraged the fiasco with unrealistic housing goals and unlimited lines of credit at Fannie Mae and Freddie Mac.

Yet, the fact that there were so many parties to blame should not be used to deflect blame from the most responsible parties of all—the big banks. Without the banks providing financing to the mortgage brokers and Wall Street while underwriting their own issues of toxic securities, the entire pyramid scheme would never have got off the ground.”

Since 2008 there have been some nominal attempts to stave off future economic disasters, including recent action by the Federal Reserve to increase capital reserve requirements for the eight biggest banks.

Reinstating some version of Glass-Steagall has been discussed since Congress (with McCain voting against) passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. Part of the law was supposed to limit risky speculation by banks whose primary business involves holding consumer deposits.

But, of course, the banks sent their lobbyists to influence already complicit regulators and legislators in watering down and generally obfuscating this provision into a mostly meaningless mess. Economist Dean Baker explains that in a 2013 op-ed Glass-Steagall now: Because the banks own Washington:

“The Volcker Rule provision in Dodd-Frank was an effort to re-establish a Glass-Steagall-type separation, but the industry is making Swiss cheese out of this regulation in the rule-writing process. Serious people cannot believe that this will keep the Wall Street banks from using their government-guaranteed deposits as a cushion to support their speculative game playing.

If anyone questions how this story is likely to play out in practice, we need only go back a few years to the financial crisis of 2008-2009. At that time, most of the major banks, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley, almost surely would have failed without government support.”

Those banks are still spending billions to fund political campaigns and then influence elected officials to thwart attempts to limit their seemingly insatiable appetites. And it has worked. Instead of getting smaller, the biggest banks have gotten bigger since 2008, though the growth rate of at least the four largest has slowed somewhat compared to pre-crisis, according to a May 2015 report by The Brookings Institution.

Sadly, it seems small local and regional banks have been the biggest casualties since the economic bust. Some have failed but many have – you guessed it – been gobbled up by big banks to make bigger banks.

Why should you care?

Is that enough information for you to contact your senators and representatives to urge support for Warren and McCain’s 21st Century Glass-Steagall?