Elizabeth Warren is making good on her promise to scare the living bejeezus out of Wall Street. Today, she’ll introduce a bill to reenact Glass-Steagall.
Glass-Steagall is the 1933 law that separated commercial and investment banking. Back in 1999 it was repealed by the Gramm-Leach-Bilely Act at the urging of Wall Street heavyweights like then-Citi CEO Sandy Weill.
That’s roughly all I have to say about it? It probably won’t happen, and the goal of keeping depositors safe by limiting depository institutions to boring regular banking is mostly a silly one.1 Mortgages! Mooooooooooooooooortgages! The boring, take-deposits-and-make-real-estate-loans banks in Spain and Ireland and Cyprus and Bedford Falls and 1989 managed to blow themselves up just fine without any help from investment banking.
But you knew all that, gah. This bill is not really about depositor safety in any sort of empirical way. It’s a more ancient and anthropological theory of the dangers posed by banking: there are pure activities and impure activities, and the danger comes from mingling the pure and the impure. You build two buckets and you keep them apart, not because one bucket is riskier than the other but because things just belong in their own buckets:
Barry Ritholtz, The Big Picture, The Return of Glass Steagall? here. Mr. Ritholtz reminds me of that Ricky Bobby is not a thinker scene in Talladega Nights. Read Matt Levine then read Ricky Bobby here, go on I’ll wait…, see what I mean? The Big Picture does have good links even though the prose occasionally reads like it was written by my in-laws’ stockbroker. Then his staff mingles with his readers in the comment section to clarify the point he has obviously given little thought; and then they all seem to agree to not think about whatever the subject of the article was some more; and finally they congratulate themselves for reaching a consensus that the 2008 market collapse was really bad for a variety of reasons. I’m jealous.
[on why Ricky should resume his racing career]
Susan: It’s because it’s what you love, Ricky. It is who you were born to be. And here you sit, thinking. Well, Ricky Bobby is not a thinker. Ricky Bobby is a driver. He is a doer. And that’s what you need to do. You don’t need to think. You need to drive. You need speed. You need to go out there, and you need to rev your engine. You need to fire it up. You need to grab a hold of that line between speed and chaos, and you need to wrestle it to the ground like a demon cobra! And then, when the fear rises up in your belly, you use it. And you know that fear is powerful, because it has been there for billions of years. And it is good. And you use it. And you ride it; you ride it like a skeleton horse through the gates of hell, and then you win, Ricky. You WIN! And you don’t win for anybody else. You win for you, you know why? Because a man takes what he wants. He takes it all. And you’re a man, aren’t you? Aren’t you?
Ricky Bobby: [pauses] Susan, I’ve never heard you talk like that… Are we about to get it on? Because I’m as hard as a diamond in an ice storm right now.