How much will Wall Street be occupied in 2016? According to a recent article in Research Magazine, not so much: “This time around, voters consider the economy and Wall Street to be less important – and the issue fades a bit more with every month of job growth.” It’s not that voters don’t care about the economy, it’s simply that they don’t care as much, because they’re not hurting as much. The current recovery has been slow, but sure.
In an April poll, 53% of potential voters told The Wall Street Journal and NBC News that “job creation and economic growth” was either the first or second most important problem the country faces. That's high. But it is down quite a bit from four years ago, when 68% of potential voters felt that way.
The fact that the economy is no longer as much of a hot button issue could be good news for the Republicans. As recently as last year, 44% of Americans blamed George W. Bush for our current economic problems – despite his being out of office for six years. Only 34% blamed Obama; another 14% blamed both. Yet the number was well below the 57% who blamed Bush on the eve of Obama's 2012 re-election.
To be sure, the issue of the “too big to fail” banks – as opposed to the dwindling number of community banks that primarily finance local entrepreneurs and meet other productive needs – remains quite relevant. In July, at her first big economic policy speech, an audience member interrupted candidate Clinton to ask if she would restore Glass-Steagall? For the record, Ms. Clinton did not answer – but the question is sure to hang over Campaign 2016 – and not just over her.
A Primer on Glass-Steagall
A bit of historical context for those who have never read an analysis of the subprime mortgage crisis that precipitated the US recession of December 2007 – June 2009. Glass-Steagall was passed in 1933 to remedy some of the destructive banking practices that caused the Great Depression. It required that investment banks (those that trade securities) be separate from commercial banks – those that accept deposits.
In a more contemporary context, Glass-Steagall would have prevented banks that were swapping subprime mortgage loans from funding those swaps with a person’s federally-insured life’s savings. Except that the Glass-Steagall provisions began to be eroded in 1994 during Bill Clinton’s administration (hmmm…) when Congress began picking apart the firewall. In 1999, after years of fierce lobbying by the country’s biggest banks, Congress voted to rescind Glass-Steagall completely –and “Main Street” has never been quite the same.
Last month, however, the pendulum may have finally started to swing back. Sen. Elizabeth Warren (D-Mass.) and Sen. John McCain (R-Ariz.), along with two cosponsors, introduced legislation to reinstate the heart of Glass-Steagall.
“Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world,” said McCain. “Big Wall Street institutions should be free to engage in transactions with significant risk, but not with federally insured deposits.”
On the Republican side of the presidential race, the crowded field has so far remained quiet on Glass-Steagall. However, as indicated by McCain’s sponsorship, the issue is a bipartisan one. Even Sen. Richard Shelby, the Alabama Republican who’s now head of the Senate Banking Committee, voted against repeal of Glass-Steagall way back in 1999.
On the Democratic side, a recent article on the Institute for Local Self-Reliance website finds that support for Glass-Steagall is simmering, and may be a sticky issue for Senator Clinton to navigate. There’s Sen. Bernie Sanders, who voted against repeal in 1999, and who’s repeatedly referenced restoring Glass-Steagall as an economic policy priority while on the campaign trail. “Sanders has also voiced strong support for the Warren-McCain bill, calling the decision to allow commercial banks and investment banks to merge a “huge mistake.”
US Senator Elizabeth Warren, while not a candidate, has called on lawmakers to break up big banks and change tax rules that benefit Wall Street, part of an ongoing effort to advance a more populist agenda. "We know what changes we need to make financial markets work better," Warren said in an April speech at a Washington conference focused on the 2010 Dodd-Frank financial oversight law. "The key steps aren't hard.”
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