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June 1, 2012 By Steven Greer
The May jobs report revealed that the economy created only 69,000 non-farm jobs, the worst number within the last year. Part of the reason that the economy is frozen in a depression is that the creation of loans by the banks has halted since the 2008 financial collapse. Reinstating the Glass-Steagall would spur lending by the banks and create millions of jobs throughout the country, in addition to dealing with the immanent threat from the “too big to fail” banks such as JP Morgan.
President Clinton signed the Gramm-Leach-Blilely law in 1999 that repealed the Glass-Steagall, which allowed the commercial banks to merge with the Wall Street gambling banks. Promptly afterward, mergers occurred. JP Morgan merged with Chase, which then acquired Bank One, etc. These “too big too fail” banks are now also too big to manage. They represent global financial risks to this day, despite 2008 collapse and the watered down Dodd-Frank bill.
The recent multi-billion dollar losses by the least-disrespected bank, JP Morgan, are proof that the system must be overhauled. Much has been written about strengthening the wording of the Volcker Rule that would prohibit risky proprietary trading by the banks. However, some financial leaders, such as the Chairman of the Financial Crisis Inquiry Commission, Phil Angelides, are calling for the reinstatement of the Glass-Steagall Act, as it would be a simpler law than the Volcker Rule, and also deal with the “too big to fail” problem.
What has not been said by the pundits is that breaking up the large banks would likely also help the world get out of the economic depression. The doomsayers of 2008 scared President Bush and congress into creating the TARP plan by warning that all bank lending would freeze up without TARP, and then the world would come to an end. Well, bank lending stopped despite of TARP. Bank lending has dried up and small businesses are scared to hire.
If the megabanks were broken up by reinstating Glass-Steagall, the purely commercial banks would be forced to lend more since the lucrative prop trading of derivatives, etc would not be part of their business models. Moreover, millions of people would be hired around the world to staff the new smaller banks, reversing the “synergies” and layoffs that occurred after the mergers. Customer service at the local neighborhood bank would increase. No longer would corporate giants be handling your money with hubris.
Reinstating Glass-Steagall seems to be a win-win-win by increasing bank lending, increasing jobs, and eliminating the global threats from megabanks. President Obama would be wise to champion this going into the 2012 elections.
Dr. Greer is a financial analyst and former Wall Street sell-side research analyst