Financial Crisis: The Republican platform put forward in Cleveland is a lively and conservative document, full of great ideas to make America great again. But one thing stands out as a truly bad idea: reviving the partly-repealed Glass-Steagall Act.
"We support reinstating the Glass-Steagall Act, which prohibits commercial banks from engaging in high risk activities," says the platform document.
What? It was one of the Democrats' big talking points during the 2007-2008 financial crisis and after that a major cause of the panic was due to Bill Clinton in 1999 foolishly going along with the Republicans to get rid of Glass-Steagall, the 1932 law that forbids commercial banks from underwriting or dealing in securities.
The only problem is, it isn't true.
Glass-Steagall was an anachronism, a legislative dinosaur that kept American banks from competing in the internet age, when global transactions could take place at the push of a button. It actually increased costs to consumers, but didn't really make the banking system safer.
And contrary to recent overheated rhetoric, Glass-Steagall wasn't "repealed." The only part that was eliminated was one that kept banks from being affiliated with a company that underwrites or sells securities.
Repeal of that provision had nothing -- zero -- to do with the financial crisis. It's a myth.
We'll let Peter Wallison, who sat on the Financial Crisis Inquiry Commission and is perhaps the foremost expert on the 2008 crisis, explain:
"The financial crisis," wrote Wallison, now a fellow at the American Enterprise Institute, "was the result of financial firms (including the government-backed mortgage companies Fannie Mae and Freddie Mac), including commercial banks, buying and holding risky mortgages or securities backed by risky mortgages. Underwriting and dealing in securities had nothing to do with the crisis."
As we've noted literally dozens of times before, the financial crisis' origins lay in Bill Clinton's decision in the early 1990s to use Big Government to force banks to make mortgage loans to low-income people who were bad credit risks.
The banks did as they were told -- they were threatened, actually -- and then, when trillions in loans predictably went bad, the banks were demonized and scapegoated by the left and their ignorant allies in the media.
And that's how Dodd-Frank, the worst financial law in modern history, was born.
Some also seem to believe that simply restoring one part of Glass-Steagall will end "too-big-to-fail" for banks. Not so. It would merely force banks that now have securities businesses to sell them -- thus making themselves financially smaller, less profitable and arguably much weaker.
Let's hope the next Congress forgets this bad idea and focuses instead on doing something that truly would make a big difference: abolishing the Dodd-Frank law, which has hurt businesses and consumers and is arguably the number one factor holding back the U.S. economy right now.
