TEXT OF COMMENTARY
Kai Ryssdal: I know we said this often during the health care debate. And it turned out often not to be true. But it does kind of feel like things are reaching a turning point in Congress. Over financial reform this time. Senate Banking Committee Chairman Christopher Dodd says he is looking to start a floor debate on reform tomorrow.
Commentator Robert Reich says the bill that’s under consideration is a good start.
ROBERT REICH: The real scandal isn’t the Street’s unlawful acts, such as Goldman Sachs’s alleged fraud, but legal acts that have reaped the Street a bonanza and nearly sunk the rest of us.
The bill now being considered in the Senate is a step in the right direction. But it omits three of the most important reforms.
First, it should require that all derivatives, that is bets on future asset prices, be traded on open exchanges where parties have to disclose what they’re buying and selling and have enough capital to pay up if their bets go wrong. The exception in the current bill for so-called “customized” derivatives opens a loophole big enough for bankers to drive their Ferrari’s through.
Second, the bill should resurrect the Glass-Steagall Act in its entirety so commercial banks are separated from investment banks. The current bill doesn’t go nearly far enough. Commercial banks shouldn’t be investing in the stock market, and investment banks shouldn’t be taking in deposits. We learned this after the Great Crash of 1929, and then forgot it in 1999 when Glass-Steagall was repealed because Wall Street wanted to create financial supermarkets.
Third, the bill should cap the size of big banks at no more than $100 billion in assets. The current bill doesn’t limit the size of banks at all. It creates a process for winding down the operations of a bank that gets into trouble. But if several big banks are threatened, as they were when the housing bubble burst, they’d almost certainly be bailed out. And knowing this they’ll take bigger risks than they should. The only way to ensure no bank is too big to fail is to make sure no bank is too big, period.
Wall Street doesn’t want these reforms because they’d cut deeply into profits, and is using its formidable lobbying clout with both parties to prevent even a decent discussion of them. It’s time for Main Street — Tea Partiers, coffee partiers, and beer drinkers — to be heard.
RYSSDAL: Robert Reich is a professor of public policy at the University of California, Berkeley.
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