Should the Glass Steagall Act be reintroduced
In the end, the late American historian Tony Judt was very worried about his country: the emancipation from any historical awareness that preceded it would have a bad effect. The attitude of the current US president is a travesty of Judt's fears: Trump doesn't even remember what he promised in the election campaign. He diligently declared that he would reintroduce the Glass-Steagall Act of 1933, which was repealed completely in 1999. Now the Dodd-Frank Act of 2010, a weak copy of the Glass-Steagall Act, is a thorn in his side.
In the 1990s, the Clinton administration was eager to deregulate the financial sector. The Glass-Steagall Act interfered with this: drafted as a result of the great crash of 1929 and the subsequent depression of the US economy, it stipulated that banks had to decide whether to manage their depositors' money responsibly or whether to carry out risky stock market transactions . This sensible separation did not suit the financial boomers of the 1990s. Ironically gifted historians like Tony Judt would arguably say: For the USA's persistent influence on the whole world, it was absolutely necessary to abolish the Glass-Steagall Act, otherwise the US financial system could not have slipped into a crisis in 2007, which almost covered all countries of the globe.
In the United States, the crisis resulted in 6.5 million households being expropriated for failure to service mortgage payments. The number of unemployed rose and rose. When President Obama took office in 2008, his administration knew that something had to be done, now. The US government launched economic stimulus programs; Unemployment benefits were paid out longer than previously usual; Money was made available for health care. In addition, there was an attempt to curb casino capitalism by law: the Dodd-Frank Act was passed in 2010. The well-intentioned law is so complicated that experts say: Even the most benevolent bankers would not understand it and therefore not be able to implement it.
The Dodd-Frank Act recognizes that, since the 1930s, the financial industry has become too big and powerful to force banks to shed huge branches of their businesses. The smaller solution, which is also practicable, is the separate banking system: the banks may continue to conduct their own business, but must strictly separate them from normal customer business in the balance sheet; they must not speculate on the deposits of ignorant customers. In addition, the banks have to hold more equity so that they are not immediately insolvent in the event of a new crisis. The financial industry was appalled by such proposals, and there was great complaint. Lobbyists ran down the doors for those responsible. They helped dilute the law - an exception here, a special rule there. The Glass-Steagall Act is 37 pages long. At the end of 2016, the Dodd-Frank Act comprised more than 22,000 pages. And a fifth of the 390 specifications had not yet been formulated.
Financial products are like dope in sports. If something is forbidden, something new will be invented
However, the conclusion that the bureaucracy is the best helper of casino capitalism is not entirely correct. The Dodd-Frank Act has had an effect, together with the requirements of the international "Basel III" treaty, which also stipulate that banks must increase their equity capital significantly. It worked better in the US than in the euro zone. American banks currently hold an average of 7.5 percent equity as a buffer in the event of a new financial crisis, compared to just 5.4 percent in the euro zone. It should also be remembered that the US government has forced failing banks into government resolution. They were later sold back. These transactions are said to have cost the US government only $ 30 billion in the end. Presumably the total price was significantly higher, but not as high as in the euro zone, where bailing out the banks was infinitely more expensive for taxpayers.
Is everything okay in the US? No. Even since the financial crisis, says the German economist Rudolf Hickel, the big banks have "continued to grow". Despite the increase in equity, unlike their European competitors, they would have made more profit than before. More effective regulation is "the order of the day".
In financial market capitalism it is like in sport: If a doping agent is detected and banned, something else is immediately invented that cannot be recognized ad hoc. The regulatory measures that were decided in 2010 have long since been overtaken by new, highly complex financial ideas. Even so, it would be a mistake to abolish the Dodd-Frank Act.
From the point of view of many, Donald Trump is completely unpredictable. So the Trump exegetes have decided to look at his entourage to see what the president will really want, instead of just announcing it. One thing is clear: Trump's economic advisor Gary Cohn has the task of winding up the Dodd-Frank Act. However, that should not be easy: The decision on this lies with the Congress. It is dominated by politicians from Trump's party. But there are likely to be a number of Republicans who do not agree that Trump campaigned for the reintroduction of the Glass-Steagall Act and wants to abolish its weak successor, the Dodd-Frank Act, today. They too should notice what the economist Hickel says: "Trump's opportunism can no longer be beaten."
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