It is only natural for political candidates to make bold statements during campaigns. That is often how you get the attention of the voting public. But as a party that claims to be reality-based, it is important for Democrats to make sure that those bold statements also happen to be true.
At Saturday night’s Democratic debate, Martin O’Malley made a bold statement that is not true. While addressing Hillary Clinton about Wall Street and economic inequality, he said this:
And that’s why today you still cannot support, as I do, breaking up the big banks and making sure that we pass a modern-day Glass- Steagall, like we had in late 1999, before it was repealed and led to the crash, where so many millions of families lost their jobs and their homes.
As many people – including Andrew Ross Sorkin – have pointed out, the repeal of Glass-Steagall (the Depression era law that created a firewall between investment and commercial banking) is not what led to the Great Recession.
Let’s look at the facts of the financial crisis in the context of Glass-Steagall.
The first domino to nearly topple over in the financial crisis was Bear Stearns, an investment bank that had nothing to do with commercial banking. Glass-Steagall would have been irrelevant. Then came Lehman Brothers; it too was an investment bank with no commercial banking business and therefore wouldn’t have been covered by Glass-Steagall either. After them, Merrill Lynch was next — and yep, it too was an investment bank that had nothing to do with Glass-Steagall.
Next in line was the American International Group, an insurance company that was also unrelated to Glass-Steagall. While we’re at it, we should probably throw in Fannie Mae and Freddie Mac, which similarly, had nothing to do with Glass-Steagall.
For that article, Sorkin contacted Sen. Elizabeth Warren – one of the big proponents of reinstating Glass Steagall – to get her reaction.
In my conversation with Ms. Warren she told me that one of the reasons she’s been pushing reinstating Glass-Steagall — even if it wouldn’t have prevented the financial crisis — is that it is an easy issue for the public to understand and “you can build public attention behind.”
She added that she considers Glass-Steagall more of a symbol of what needs to happen to regulations than the specifics related to the act itself.
While we can’t assume that Warren is speaking for other Democrats, that assessment might shed some light on why reinstating Glass Steagall has been something that both Sanders and O’Malley have been pushing quite a bit during this campaign. Here’s something Sanders said Saturday night:
The CEOs of large multinationals may like Hillary. They ain’t going to like me and Wall Street is going to like me even less.
And the reason for that is we’ve got to deal with the elephant in the room, which is the greed, recklessness and illegal behavior on Wall Street…
And let me be clear: While there are some great corporations creating jobs and trying to do the right thing, in my view — and I say this very seriously — the greed of the billionaire class, the greed of Wall Street is destroying this economy and is destroying the lives of millions of Americans.
The greed of Wall Street is still fresh in our minds since the Great Recession. But as Sanders said earlier in the debate, growing income inequality has been a fact in America for at least the last 40 years – long before the events that led to the financial crash. The greed he’s talking about is hardly limited to Wall Street. It is a “bug” in our capitalist system that progressives have been working to contain for decades.
As Phillip Longman pointed out in the latest edition of the Washington Monthly titled Bloom and Bust, growing income inequality also coincided with the repeal of many government efforts back in the 1970’s – like the Robinson-Patman Act, which “prevented the formation of chain stores even remotely approaching the scale and power of today’s Walmart or Amazon by cracking down on such practices as selling items below cost.” That’s why Paul Glastris wrote this in response:
Here’s hoping the candidates start debating Robinson-Patman as vigorously as Glass-Steagall.
When it comes to tackling the issue of income inequality, don’t get fooled by symbolic gestures. And don’t make the mistake of thinking that somehow Wall Street is the sole culprit whose greed must be managed.