McCain's Redemption?

John McCain may be searching for redemption here….

Dec. 16 (Bloomberg) — U.S. Senators John McCain and Maria Cantwell proposed reinstating the Depression-era Glass-Steagall Act that split commercial and investment banking to rein in Wall Street firms in response to the financial crisis.

“Under our proposal, too-big-to-fail banks would be forced to return to the business of conventional banking, leaving the task of risk taking or management to others,” McCain, an Arizona Republican, said at a Washington news conference. A former bank regulator said splitting up companies is “crazy.”

I will reiterate what I said back in the summer and fall of 2008: I am absolutely convinced that McCain’s endorsement of the TARP bailout bill, and his refusal to stand up and take a strong position in favor of the common man, is why he lost the election.

Reinstating Glass-Steagall would be a near-total reversal of his previous position.  It would be recognition of the facts: Banks that are allowed to gamble in the financial markets inherently are gambling with the sovereign credit of The United States, and inevitably transfer their losses to the taxpayer while keeping ALL of the profits for their overpriced staff and executives.

This is often said to be of “benefit” to the public because these banks are public companies.  This is a flat lie: Goldman typically bonuses out roughly half of their gross profits, with only a minuscule piece being paid in dividends to shareholders.  Other banks have similar compensation policies.

There is no “free market” way to prevent such distribution.  You can only prevent it by prohibiting lending and/or depository institutions from speculating in any form or fashion in the markets.

For those firms that wish to speculate they should be free to – with their own funds (that of their shareholders or bondholders) but they must be accountable to the last penny for each dollar at risk, and unable to transfer that risk to the taxpayer.

Wall Street will, of course, fight any such law tooth and nail, because speculating with other people’s money and being able to force the taxpayer to eat all risks of loss is the time-honored fashion by which these institutions steal hundreds of billions of dollars from taxpayers each and every year.

This has ratcheted up the government’s obligations to the point that there is a very real risk the government may be unable to meet its obligations.  That, of course, would be an unmitigated disaster and quite literally could result in the end of our Republic.

The truth is right here:

“We cruise along for 80 years without a major calamity infecting the entire financial system and then less than eight years after the repeal of Glass-Steagall we have a financial meltdown in this country,” Camden Fine, president of the Washington-based trade group for about 5,000 smaller U.S. banks, said in a telephone interview. “That’s no accident.”



If John McCain has finally thrown his “trusted economic advisor” Phil Gramm (of Gramm-Leach-Bliley fame, which repealed the last pieces of Glass-Steagall, and who proclaimed that we were in a “mental recession” during the campaign) over the side of the boat with cement shoes attached it is long overdue.  If he truly is willing to get behind and press this bill through the Senate and raise hell – in public if necessary – to get it passed, I will take back all the ugly things I said about him during the 2008 campaign, and should he run in 2012, I would be likely to vote for him as well.

John McCain can demonstrate he’s serious about REAL financial reform and not just bloviating by joining – and rallying others to join – a block on Bernanke’s confirmation for a second term.