“Hillary, of All People, Should Remember”

Former Bill Clinton Labor Secretary Robert Reich yesterday attacked Hillary Clinton’s refusal to back reinstating Glass-Steagall—according to her economic advisor Alan Blinder—as “a big mistake”— politically, because many believe she is too close to the Wall Street banks, and “economically,” because “the repeal of Glass-Steagall led directly to the 2008 Wall Street crash.”

Reich goes through the Glass-Steagall basics: it was passed after the 1929 crash to restore the public’s faith in the banking system, by preventing banks from both taking deposits and gambling.

Reich quotes Sen. Elizabeth Warren on her Glass-Steagal bill: “The idea is pretty simple behind this one. If banks want to engage in high-risk trading — they can go for it, but they can’t get access to insured deposits and put the taxpayers on the hook for that reason.”

Noting that it worked for six decades, until its 1999 repeal, Reich adds, “A personal note. I worked for Bill Clinton as Secretary of Labor and I believe most of his economic policies were sound. But during those years I was in fairly continuous battle with some other of his advisers who seemed determined to do Wall Street’s bidding. On Glass-Steagall, they clearly won.”

Reich then debunks the canards about Glass-Steagall’s irrelevance to the 2008 crash:

• “The real culprits were non-banks like Lehman Brothers and Bear Stearns.” 

Reich says, “Baloney. These nonbanks get their funding from the big banks” as lines of credit, mortgages, and repurchase agreements. How could they get easy credit on bad collateral? Because Glass-Steagall was gone.”

• “Mortgage brokers” were the culprits.

Reich says they share some of the blame, but again, it was the big banks who were enablers. “The mortgage brokers couldn’t have funded the mortgage loans if the banks hadn’t bought them, and the big banks couldn’t have bought them if Glass-Steagall was still in place.”

• “None of the big banks actually failed.”

This, Reich says, is like arguing that lifeguards are no longer necessary at beaches where no one has drowned. If the government hadn’t thrown them lifelines, many would have gone under. They were bailed out because they were too big to fail.”

“This is precisely what the Glass-Steagall Act was designed to prevent—and did prevent for more than six decades. Hillary Clinton, of all people, should remember.”