Paul Craig Roberts Warns "Without Glass-Steagall, America Will Fail"

Authored by Paul Craig Roberts,

For 66 years the Glass-Steagall act reduced the risks in the banking system. Eight years after the act was repealed, the banking system blew up threatening the international economy. US taxpayers were forced to come up with $750 billion dollars, a sum much larger than the Pentagon’s budget, in order to bail out the banks. This huge sum was insufficient to do the job. The Federal Reserve had to step in and expand its balance sheet by $4 trillion in order to protect the solvency of banks declared “too big to fail.”

The enormous increase in the supply of dollars known as Quantitative Easing inflated financial asset prices instead of the consumer price index. This rise in bond and stock prices is a major cause of the worsening income and wealth distribution in the United States. The economic polarization has undercut the image and reality of the US as a land of opportunity and has introduced political and economic instability into the life of the country.

These are huge costs and for the benefit only of the rich who were already rich.

So, what we can say about the repeal of Glass-Steagall is that it turned a somewhat egalitarian democracy with a large middle class into the One Percent vs. the 99 percent. The repeal resulted in the destruction of the image of the United States as an open prosperous society. The electorate is very much aware of the decline in their economic situation, and this awareness expressed itself in the last presidential election.

Americans know that the nonsense from the US Bureau of Labor Statistics about a 4.3% unemploment rate and an abundance of new jobs is fake news. The BLS gets the low rate of unemployment by not counting the millions of discouraged workers who cannot find employment. If you haven’t looked for a job in the last 4 weeks, you are not considered unemployed. The birth/death model, a purely theoretical construct, accounts for a large percentage of the non-existent new jobs. The jobs are there by assumption. The jobs are not really there. Moreover, the replacement of full time jobs with part time jobs proceeds. Pension and health care benefits that once were a substantial part of the pay package are being terminated.

It makes perfect sense to separate commercial from investment banking. The taxpayer insured deposits of commercial banking should not serve as backing for investment banking’s creation of risky financial instruments, such as subprime and other derivatives. The US government understood that in 1933, but no longer did in 1999. This deterioration in government competence has cost America dearly.

By merging commercial banking with investment banking, the repeal of Glass-Steagall greatly increased the capability of the banking system to create risky financial instruments for which taxpayer backing was available. So, we have the extraordinary situation that the repeal of Glass-Steagall forced the 99 percent to bail out the One Percent.

The repeal of Glass-Steagall has turned the United States into an unstable economic, political, and social system. We have a situation in which millions of Americans who have lost full time employment with benefits to jobs offshoring, whose lower income employment in part time and contract employment leaves them no discretionary income after payment of interest and fees to the financial system (insurance on home and car, health insurance, credit card interest, car payment interest, student loan interest, home mortgage interest, bank charges for insufficient minimum balance, etc.), are on the hook for bailing out financial institutions that make foolish and risky investments.

This is not politically viable unless Congress and the President are going to resign and turn over the governance of America to Wall Street and the Big Banks. A growing cresendo of voices are saying that this has already happened.

So, where is there any democracy when the One Percent can cover their losses at the expense of the 99 Percent, which is what the repeal of Glass-Steagall guarantees?

Not only must Glass-Steagall be restored, but also the large banks must be reduced in size. That any corporation is too big to fail is a contradiction of the justification of capitalism. Capitalism’s justification is that those corporations that misuse resources and make losses go out of business, thus releasing the misused resources to those who can use them profitably. Capitalism is supposed to benefit society, not be dependent on society to bail it out.

I was present when George Champion, former CEO and Chairman of Chase Manhattan Bank testified before the Senate Banking Committee against national branch banking. Champion said that it would result in the banks becoming too large and that the branches would suck savings out of local communities for investment in traded financial assets. Consequently, local communities would be faced with a dearth of loanable funds, and local businesses would die or not be born from lack of loanable funds.

I covered the story for Business Week. But despite the facts as laid out by the pre-eminent banker of our time, the palms had been greased, and the folly proceeded.

As Assistant Secretary of the US Treasury in the Reagan Administration, I opposed all financial deregulation. Financial deregulation does nothing but open the gates to fraud and sharp dealing. It allows one institution, even one individual, to make a fortune by wrecking the lives of millions.

The American public is not sufficiently sophisticated to understand these matters, but they know when they are hurting. Few in the House and Senate are sufficiently sophisticated to understand these matters, but they do know that to understand them is not conducive to having their palms greased. So how do the elected representatives manage to represent those who vote them into office?

The answer is that they seldom do.

The question before Congress today is whether they will take the country down for the sake of campaign contributions and cushy jobs if they lose their seat, or will they take personal risks in order to save the country.

America cannot survive if excessive risks and financial fraud can be bailed out by taxpayers.

US Representatives Walter Jones and Marcy Kaptur and members of the House and staff on both sides of the aisle, along with former Goldman Sachs executive Nomi Prins and leaders of citizens’ groups,  have arranged a briefing in the House of Representatives on June 14 about the importance of Glass-Steagall to the economic, political, and social stability of the United States.  Let your representative know that you do not want the financial responsibility for the reckless financial practices of the big banks.  Let your representative know also that you do not want big banks that dominate the financial arena. Let them know that you want the return of Glass-Steagall.

The effort to reduce the financial risks arising from the commingling of commercial and investment banking by requiring stronger capital positions of financial corporations is futile. The 2007-08 financial crisis required the taxpayers and the printing press and an amount of money that exceeded any realistic capital and liquidity requirements for financial institutions.

If we don’t re-enact Glass-Steagall, the risks taken by financial greed will complete the economic destruction of America.

Congress must serve the people, not Mammon.


greenskeeper carl stizazz Tue, 06/13/2017 - 23:31 Permalink

I believe we are well past the point where glass-steagall could save us from a calamity. Putting that back in place could well cause the very calamity it seeks to prevent. Not that it isn't coming one way or another, and we might as well get that ball rolling, but something like glass-stegall would only be useful after(if) we get through whatever shitstorm we've created for ourselves.

In reply to by stizazz

WorkingPoor greenskeeper carl Wed, 06/14/2017 - 04:44 Permalink

G/S should have been left alone, but this country was stupid enough to elect a biscuit-losing philanderer to get it undone.TWICE.Even at this late date, I am STILL not at the "let it come" point of view for whatever is to befall. That said, it seems certain that there will not be any entity capable of running the post-disaster US sufficient to have a r-G/S to stop a repeat. Come to that, there won't be a banking system in place to NEED it.        

In reply to by greenskeeper carl

The Wizard greenskeeper carl Wed, 06/14/2017 - 08:45 Permalink

This is a good analysis of Glass-Steagall. When it was revised there were certain items dropped and certain items not dropped. Forget Glass Steagall, bring the banksters under control. I don't expect this to happen with Government Sachs still holding onto power positions. justice closing in on the banksters? She tried to stay quiet, she really did. But after eight years of keeping a heavy secret, the day came when Alayne Fleischmann couldn't take it anymore…

In reply to by greenskeeper carl

junction Sy Kloine Bee Tue, 06/13/2017 - 23:43 Permalink

Paul Craig Roberts seems really worried when you see him on Internet shows discussing insane neocon warmongers and totally corrupt banksters.  The big problem is the total incompetence and corruption of top government officials like Jack Lew and Henry Paulson.  Right now, I am watching the skyNEWS live video news feed of a tower block in West London that is engulfed in flames.  One witness just on said "its gone". The same can be said for the world economy, saddled with $2 quadrillion of derivative debt.  Most of the fire pouring out windows is blocked from view by massive clouds of smoke. That fire is readily apparent.  What about the $22 trillion dollars of derivative debt that Bank of America has on its books, most acquired when B of A acquired Merrill Lynch.  Merrill Lynch's former CEO, Stanley O'Neal, promoted because he was black, turned out to be as arrogant and corrupt as any white Harvard Business School graduate.  When O'Neal reported to work in the morning, he had guards block out an entire bank of elevators so he could ride up to his office by himself.  A fact no one in the main stream news mentioned.  Hopefully, PCR is wrong on another score and we don't have a nuclear war.  Right now, no bets are off the table.  That Greenfell Tower is doomed, the only question being when the building falls down.  Unlike the World Trade Center, this fire is at a building where no controlled demolition charges were placed by former Army ordnance experts.  

In reply to by Sy Kloine Bee

The Grim Teacher junction Wed, 06/14/2017 - 05:22 Permalink

Did the tower block collapse into its own foot print faster than free fall, and leave a scant rubble pile not at all consistient with the size of the building that used to be there....??I once saw this 110 story sky scraper  that a plane flew into, it caught fire after the impact of the plane, and then after it had been burning for a little while (not engulfed in flames mind) it crumbled into mostly dust and left behind hardly any rubble. Same thing happened a 2nd sky scraper on the same day, and then weirdly a third large building which hadn't been struck by any plane and had a few small scattered fires in it did the same thing, collapsed neatly into its own foot print. I wonder do burning buildings in London behave the same way, or maybe the laws of physics operate differently over there......

In reply to by junction

pavman The Grim Teacher Wed, 06/14/2017 - 07:08 Permalink

I too witnessed the buildings' collapse; ironically, I remember when it was announced on the live news coverage that they were going to perform a controlled demolition of building 7 and the rationale. Strangely I cannot find the footage....maybe the real false flag is making people think it was a false flag.Regardless, helps me keep a level head when it comes to crackpot conspiracy theories.

In reply to by The Grim Teacher

Endgame Napoleon VWAndy Tue, 06/13/2017 - 23:59 Permalink

They enforced the law selectively on those savings & loan speculators in the Eighties.

This is one part of the issue, but when women entered the workforce in large numbers, it made most people's labor less valuable.

You cannot double the number of available workers chasing the low-wage jobs, with the ones whose wages are high marrying and concentrating the money from good-paying jobs in fewer homes, without ripping the middle class apart.

Women with second incomes or welfare/taxfare for out-of-wedlock reproduction accept low pay in exchange for absenteeism privileges. Their major bills are paid by income not related to the job.

Pay goes down for people who do not have a hubby income, a child support check to cover rent or welfare to cover monthly bills and a big old Child Taxfare Check of $6,269 in April.

Add on mass infusions of taxpayer-subsidized immigrant competitors and millions of offshored workers who do not even pay into the SS system, weakening it, and you have a recipe for destroying your country, even before adding automation-based underemployment.

The bankers just designed ways to make interest off of these larger social forces, like issuing student loans to people who want to believe that the forces above do not have as much to do with most people's earning power than most degrees.

The bankers did not tell society that every woman who is bored with her children, and whose husband makes plenty to support the household in a middle-class style, if not an over-the-top show-off style, must work---must have a "career," even if it is just working as an educated, but unlicensed, unofficial insurance agent, able to accept rock-bottom pay due to hubby's income, leaving at 2:30 every day and for weeks of excused absenteeism for kids.

Do not bother to jump through the recurring hoops and to pay the fees to get the "legally required licenses" for such jobs, because between the unlicensed welfare/taxfare mommas with their womb-based freebies and the mommas with spousal income working in the nicer, safer areas of the city, employers are not going to pay decent wages.

This applies to many other jobs, including most corporate back offices and many state jobs, too. Rich people were not the only ones who fostered these social trends, but they cash in on it in many ways. One way is via a welfare/taxfare-buttressed workforce with an incentive to accept low pay.

The less the mommas make, the more welfare/taxfare they get from Uncle Sam and the Treasury Department as a reward for sexual intercourse and reproduction. It is called feminism--fake feminism--where the womb-based privileges are the focus.

In reply to by VWAndy

Giant Meteor VWAndy Wed, 06/14/2017 - 02:24 Permalink

Correct. An often overlooked factoid. For all intents and purposes it (Glass Steagall) was already dead, right up until the time it was made "officially" dead. Laws are routinely ignored, violated, not enforced ie; BROKEN in regards to the financial crime wave that afflicts the nation and it's people. Witness and behold, the rise of "non prosecution agreements" , no admission of guilt .Enron, and a host of other's, had revealed a pattern of systemic corruption, corruption at every level, and at the highest levels, corruption that exists in far more, higer orders of magnitude, as the financialization of every fucking thing (financial lies nation) demonstrates.The nations citizens are held captive in a massive criminal enterprise, whose breadth and scope in the history of mankind, has little to no equal.Obviously "the government" , benefits in these massive financial crimes, and crime waves, which is why the government, facilitate's the open criminality in the first place. There is no separation between financial criminals and it's criminal political facilitator's, at every level and in every branch of so called government, the chief facilitator's of financial crimes  ..Enforce "Sarbanes Oxley" and every head of every major bank does hard time.Enforce Rico statutes, the entires government and their too big too fail financial / corporate cronies get locked up .. In that world, John Corzine does time, in the cell right next to Bernie Madoff ... 

In reply to by VWAndy

chunga Underground Wed, 06/14/2017 - 00:43 Permalink

It's crazy. We deal with a little credit union but the card transactions are process by some big outfit. The big outfit fraud dept explained that the trasaction was flagged for potential fraud and they claim they tried to call us to confirm it. After talking with them, I learned they were calling the wrong number.We had to change our number because an out of state (Indianapolis) fire dept. kept calling us at all hours of the day and night. Most times the caller would just hang up on me, but I started hitting the redial button and calling them back. They still kept hanging up on me, but I persisted and finally talked to the chief. We figured it out that this was a number they called for payroll or something, and if they dialed a 9 when they didn't need to, it would call us.Ok, I call the phone company, explain, and get a new number. I also point out that whenever we call anybody the caller ID reflects the name of the last party who had this mumber and they claim to fix all this. Well this messes up their system and from there on my online billing statement says zero and won't let me pay anything. Finally the phone company catches up and starts notifying me my bill is seriously delinquent and are slapiing me with late fees. I call them up, press this, press that, finally repeat all that, and explain, the rep agrees they made a mistake, then hang up on me.Frustrated, the next day I try their preferred method of communication, on line chat, and get credited the bogus late fees. So between the changed phone number and joining a fantasy football league I triggered off their fraud dept. and I got "profiled" and sut off my debit card on the spot, High finance outfits can set up microwave interceptors to rig the stock gambling million times a second without consequence but football games are nabbed instantly. Note for you btcoin lovers.I'm still getting "seriously delinquent" bills in the mail from the tel company even though it isn't even due yet and the sucky thing is I can't even use the bills to start fires because it's printed on fake paper, it doesn't burn it melts. 

In reply to by Underground

uhland62 VWAndy Tue, 06/13/2017 - 23:09 Permalink

There is a possibility, even though small, that many countries will either withdraw from the US financial market and/or put new money elsewhere. When they see the monopoly slipping they might change their minds, possibly, but they could be so slow that they cannot prevent a crash any more. 

In reply to by VWAndy

Singelguy uhland62 Wed, 06/14/2017 - 05:32 Permalink

The only problem is that other central banks are doing exactly what the Federal Reserve is doing. The US dollar is still the cleanest shirt in the laundry hamper and money continues to flow into the US markets in order to escape even worse situations. By the time the monopoly starts slipping, it will be far too late. For all intents and purposes, it is already too late. The debt is so large that it can never be repaid and if interest rates were to return to historical norms, many countries and businesses would be insolvent. Nothing short of a total crash and reset can fix this now.

In reply to by uhland62

WTFUD Tue, 06/13/2017 - 22:57 Permalink

Paul's usually on the ball . . . will fail . . . you mean has failed.

At least Fort Knox is rammed to the brim with gold-plated tungsten.

timehill Tue, 06/13/2017 - 23:00 Permalink

PCR is ABSOLUTELY CORRECT! It's all about greed and political payoff (Bill Clinton)! Shame on them! Make banks, banks again and investment banks, investment banks!

Chupacabra-322 Tue, 06/13/2017 - 23:24 Permalink

This goes deep, and no one is connecting the dots. First of all, Goldmanites Mnuchin and Cohn, the bankster boys that Trump put in charge of the US economy, want this:

"Treasury seriously studying issuing 50-year or 100-year bonds: Mnuchin"

And they want this:

"Trump Begins to Chip Away at Banking Regulations"

But most of all they want this:

"With Trump's deregulation plan, big banks could get back in the mortgage market"

So what does it all mean? With no Dodd-Frank, the now non-regulated banks will be free to create 50 year amortized mortgages. A $300,000 loan will have P&I payments of $1,100 a month, and everybody with a house and a pulse will re-fi their mortgages. The TBTF banks will make hundreds of billions in mortgage fees (points), and hundreds of billions more selling the mortgage-backed securities to the secondary market.

And there's much more:

"Goldman Sachs has purchased 59% of Fannie Mae-auctioned NPLs since it started selling in 2015 – a total of $5.7 billion in unpaid loan balances."

The Goldmanites are siting on over thousands of non-performing mortgages recently bought at big discounts from the GSEs, and, with the crazy cheap payments on the 50 year mortgages they can give new buyers of the homes they foreclose on, they will make untold billions of dollars more. And, by the way, they sure as hell don't need Carney to do this. Goldmanite William C. Dudley is the President of the New York Fed (FRBNY). He is the real power behind the Federal Reserve Bank and gets paid twice as much as Yellen. With Dudley running the Fed, Ex-Goldman President Cohn, Trump's chief economic adviser, and Goldman partner Mnuchin as Secretary of the Treasury, the Goldmanites can run the table and create an even higher leveraged housing boom than we saw in 2007.

No one in the MSM is tracking what the Goldmanites are really up to. It's time to blow the whistle on them.

HRH Feant2 Tue, 06/13/2017 - 23:43 Permalink

Sad but true. I don't see any way to save the USSA from destruction.

Much like the towering inferno, in London, that is burning right now. Nothing else to do but wait for the building to collapse and clear up the rubble.

pizdowitz Wed, 06/14/2017 - 00:20 Permalink

PCR : Stop scaring the people. Your premise is based on an asumption that the debt must be paid back. It is a wrong assumption. It never will be paid back. That notion is neither new nor revolutionary - even Ronald Reagan already in the 80's agreed that the debt does not matter.

Both US and EU debt are now well past "sensible" debt level, and firmly in the "voodoo economy" stratosphere, and for the right reasons. Let's remember that "sensible debt" is an oxymoron - you either support usury, you or you don't.

Let's also remember that money is needed to facilitate the flow of goods. How much is enough? You do not know that, I do not know that, and nobody else does, no matter how convoluted the statistics applied to dimension that.

My vote is for :
1) open market free of any regulations (,
2) infinite supply of money in perpetuity at near-zero rate