John McCain wants a Glass-Steagall do-over

Break up the big banks, says the born again regulatory crusader! FDR was right!

Published December 16, 2009 8:39PM (EST)

John McCain seems to be feeling a bit of buyer's remorse. In 1999, he voted for the Gramm-Leach-Bliley Act that repealed Glass-Steagall -- the 1933 law separating commercial and investment banking activities. His campaign chairman in 2000 was one of the bill's biggest proponents -- the arch-deregulator Phil Gramm. But now McCain wants a do-over. On Wednesday morning, he joined up with Washington Democrat, Sen. Maria Cantwell, to introduce a bill aimed at bringing Glass-Steagall back from the dead.

From McCain's press release:

"I am pleased to be working with Senator Cantwell on this important issue. My reasons for joining this effort are simple -- I want to ensure that we never stick the American taxpayer with another $700 billion -- or even larger -- tab to bailout the financial industry," said Senator John McCain. "If big Wall Street institutions want to take part in risky transactions -- fine. But we should not allow them to do so with federally insured deposits. It is time to put a stop to the taxpayer financed excesses of Wall Street," McCain continued. "No single financial institution should be so big that its failure would bring ruin to our economy and destroy millions of American jobs. This country would be better served if we limit the activities of these financial institutions."

Suddenly, Glass-Steagall seems to have been a good idea after all!

Beginning in 1933, Glass-Steagall established a wall between commercial and investment banking to protect depositor money from being put at risk by Wall Street speculation. For nearly 60 years, this firewall maintained the integrity of the banking system; prevented self-dealing and other financial abuses; and limited stock market speculation. But since its repeal, banks have blended banking and brokerage, using loopholes in the Act and other statutes to market financial products like stocks, mutual funds and underwriting stocks to their consumers at the same time. When these megabanks default under the current system, taxpayers pay for the losses twice over.

Does Cantwell-McCain have a snowball's chance in hell? Both Republicans and Democrats claim to be opposed to "too big to fail" -- here would be one clear way to cut the biggest banks down a notch or two. JPMorgan, for example, would have to divest itself of Bear Stearns. Bank of America would have to disgorge Merrill Lynch. Citigroup would shatter.

But considering how little appetite Congress seems to have for much milder regulatory fare, and how hard the banks would fight any such move, I'd be shocked to see Cantwell-McCain gain any real momentum. Not a single Republican in the House voted for regulatory reform last Friday, and Senate Republicans have hardly demonstrated their own zeal for fundamental change on Wall Street. Congratulations to McCain for realizing the error of his ways, but until we hear the likes of Jim DeMint calling for the return of Glass-Steagal, while standing shoulder to shoulder with Bernie Sanders, let's not get too excited.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

MORE FROM Andrew Leonard

Related Topics ------------------------------------------

Bank Bailouts Bank Reform How The World Works John Mccain R-ariz.