With Larry Summers’ nomination to the Fed dead, the stage is set for an epic battle over U.S. banking reform.
Support for reinstatement of the 1933 Glass-Steagall law has grown significantly since Congress returned from its summer recess, according to the Executive Intelligence Review.
On Sept. 12, New Jersey state Sens. Shirley Turner and Jeff van Drew, both Democrats, introduced Senate Resolution 121, which "urges the U.S. Congress to adopt the 'Return to Prudent Banking Act of 2013.'" The bill is identical to New Jersey Assembly Resolution 182, which was introduced in June.
Memorials to Congress demanding action are also coming from hard-pressed cities ranging from Detroit to Wilkes-Barre, Pa.
At its national convention Sept. 9-11, the AFL-CIO passed a resolution supporting Glass-Steagall, with particular reference to the bill introduced in the Senate by Elizabeth Warren, D-Mass.; Maria Cantwell, D-Wash.; John McCain, R-Ariz.; and Angus King, I-Maine.
Warren, who cited the nine co-sponsors on her bill -- Sen. Bernie Sanders, I-Vt., was the latest to add his name – said, "Glass-Steagall gave us 50 years of economic growth without banking crises. Punching holes in Glass-Steagall in the '80s and then repealing Glass-Steagall in 1999 is what put the risk back in the system that we saw blow up."
Glass-Steagall would restore the protective wall between commercial banks and speculative Wall Street brokerages. In a remarkable shift, it is starting to gain traction in the financial community.
On Sept. 9, John Reed, former chief executive officer of Citigroup, told the Financial Times he supports Glass-Steagall.
“Unlike his onetime colleague in repealing Glass-Steagall, Sandy Weill, who declared his support for Glass-Steagall last summer, Reed admitted that the logic behind merging Citicorp with Travelers Insurance (the merger which buried Glass-Steagall in 1998), was ‘flawed,’” EIR reported.
On the eve of Sunday’s German elections, the banker who administered the 2008 bankruptcy of Lehman Brothers recommended a worldwide Glass-Steagall banking system.
Bryan Marsal told the German paper Die Welt that he had supported the repeal of Glass-Steagall "until I saw what happened to Lehman."
"What's going on now, is we're going through the greatest financial crisis in modern or related history,” former U.S. presidential candidate Lyndon LaRouche told radio host Patrick Timpone last week.
“Under present conditions, (bankers are) going to have to make some very large adjustments, because the rate of inflation built into the banking system is such that it just cannot keep going.”
LaRouche is not alone.
"This looks like to me like 2007 all over again, but even worse," William White, former chief economist at the Bank of International Settlements, told the London Daily Telegraph.
"All the previous imbalances are still there. Total public and private debt levels are 30 percent higher as a share of GDP in the advanced economies than they were then, and we have added a whole new problem with bubbles in emerging markets that are ending in a boom-bust cycle," said White, who is now chairman of the OECD's Economic Development and Review Committee.
In a keynote speech to the AFL-CIO national convention in Los Angeles, Sen. Warren promoted her Glass-Steagall legislation as a road back to fiscal sanity and stability.
"Five years ago, experts said the banks had to be bailed out because there was too much concentration in banking and one failure would bring down the entire economy. Now the four biggest banks are 30 percent larger than they were five years ago. The five largest banks now hold more than half of all banking assets in the country.
“Because investors know they are too big to fail, those big banks get cheaper borrowing, which, according to one study, adds up to an annual $83 billion subsidy from taxpayers-another benefit of being Too Big to Fail,” she said.