Trump Munchin and the big bank agenda

Looking at the Trump administration’s proposals to reduce regulation of Wall Street banks, Albert Einstein and Yogi Berra come to mind.

“Insanity,” said Einstein, “is doing the same thing over and over again and expecting different results.” Yogi would have watched what’s happening and said, “it’s deja vu all over again.”

A brief trek through history: Back in 1934, after accepting the conclusions of the Pecora Commission report on the causes of the Great Depression, Congress created the Federal Deposit Insurance Commission. The FDIC was a simple solution to an age-old problem. Throughout American history, recurring financial crises had one thing in common. News of banks in financial trouble would precipitate a “run” on those banks, too many depositors desperately trying to withdraw their money. Even healthy banks couldn’t survive that kind of panic. They would go under. Many depositors would lose everything. Credit would dry up, leading to recessions or depressions.

The FDIC solved the problem by instituting a federal government guarantee that individual deposits would be insured against loss up to a certain amount, $2,500 in 1934, $250,000 today. To make this insurance program fiscally possible, though, Congress stipulated that only commercial banks, not involved in high-risk investment banking, could join the FDIC. The Glass-Steagall Act, passed by Congress in 1933, had already forced banks to choose which kind of banking activity they would engage in.

During the next 60 years, there were no major bank crises. We had actually fixed a problem that plagued the country for the previous 160 years of our history.

Naturally, a lot of bankers were unhappy with the restrictions Glass-Steagall imposed on them. In the 1990s, the CEO of Travelers Insurance, Sandy Weill, proposed a merger of his company and Citibank. A strict interpretation of Glass-Steagall would have prevented the merger, but under the leadership of Chairman Alan Greenspan the Federal Reserve approved it.

Already in tatters, Glass-Steagall was repealed by Congress in 1999. Banks were once again allowed to move into high-risk investments such as derivatives. The lessons of the Great Depression were forgotten. And, deja vu all over again, in less than 10 years, the near-collapse of the banking system was the primary cause of the worst financial crisis since the Great Depression.

Just as it did in the 1930s, Congress looked for ways to prevent the next such crisis. There was, of course, an obvious solution. When I was in the Senate, a number of us tried to reinstate Glass-Steagall. Even Sandy Weill spoke out and said repealing it had been a mistake.

The bank lobby was too powerful. We couldn’t even get a vote on reinstating the law to the Senate floor.

I then joined a group advocating for what became known as the Volcker Amendment. It didn’t make banks choose between commercial and investment banking, but it did restrict them from making certain high-risk investments.

The Amendment became part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Like many other provisions of the Act, after it was passed by Congress it went through a process of agencies fashioning the details of its regulations. The big banks unleashed their lobbyists in full force and the Volcker restrictions were watered down. But they were still effective enough for the banks to want to get rid of them.

It looks like President Trump and Steven Munchin, a former Goldman Sachs executive who is his nominee for Treasury Secretary, are very much in favor of the big bank agenda. One of the new administration’s first executive orders was to begin the repeal of major pieces of Dodd-Frank. All of President Trump’s selections for cabinet positions and heads of regulatory agencies support drastically cutting financial regulations.

That’s exactly the same approach last tried from 2000 to 2008, when an anti-regulation administration emboldened people like Christopher Cox, the SEC chairman who famously believed that banks were capable of self-regulation.

So here we go again. Insanity and deja vu, indeed. We’re about to repeat all the mistakes that led to the financial meltdown of 2008-2009. Add another quote to Yogi’s and Einstein’s: “Fasten your seatbelts,” said Bette Davis in All About Eve; “it’s going to be a bumpy ride.”

Ted Kaufman is a former U.S. senator from Delaware.