Senator Warren Restates, Sharpens Call for Glass-Steagall

Interviewed March 31 by the American Prospect, Sen. Elizabeth Warren restated the current necessity for Glass-Steagall re-enactment; the interview was the first time she has linked this necessity to the lack of productive credit in the U.S. economy.

Asked by interviewer Robert Kuttner about the Wall Street banks’ practice of using Federal Reserve QE reserves and borrowings to speculate with U.S. Treasury securities, avoiding the economy, Warren said that small and medium-sized companies continue to be unable to get credit for production, due to the constantly increasing dominance of credit markets by the biggest Wall Street banks. She described Wall Street lending to corporate giants [who use the loans to build up the stock market—ed.] and to consumers, but not to the vast majority of companies.

“Over the long run, that shift in lending will have a devastating effect on our economy,” Warren said. “And that’s exactly why we need a new Glass-Steagall Act to break up the biggest banks.” She described them gobbling up the community banks which would lend to business, while on the speculative markets, using their huge FDIC-insured deposit bases as an advantage over the shadow banks.

Warren said that her Glass-Steagall bill with Senators McCain, Cantwell, and King closed the holes that “regulators” [i.e., Alan Greenspan] had punched in the Act before its 1999 repeal, and walled off derivatives from commercial banking, which the original Glass-Steagall had not specifically had to do.

She also disagreed that there is less systemic risk in Wall Street than in 2007, noting particularly that “if one fails, then several of them are headed over the cliff together.” Dodd-Frank should not have left the giant banks as they were, she implied, and doing so allowed them to maintain the political power to repeal derivatives regulations of Dodd-Frank, etc.

American Prospect‘s accompanying article was full of speculations about Senator Warren’s impact in pushing Hillary Clinton to the left, and whether Clinton — who they assume will be the nominee — will appoint an economic team of Wall Street bankers as Obama did.