After 14 Years of Free-for-All, Glass-Steagall Is Back

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Three cheers for Elizabeth Warren!

Yesterday she launched a wire-guided Scud missile at the too-big-to-fail banks.

The freshman senator from Massachusetts, formerly a Harvard Law School professor specializing in bankruptcy law, introduced her "21st Century Glass-Steagall Act" co-sponsored with Sens. John McCain (R-Ariz.), Maria Cantwell (D-Wash.), and Angus King (I-Maine).

And it's got the Big Banks shaking in their boots.

Here's why.

The 21st Century Act would separate institutions with savings and checking accounts, in other words FDIC-insured depository commercial banks, from investment and trading "banks" engaged in capital markets activities, most of which are on the border between speculation and manipulation.

Finally!

The senators noted that, "Under Glass-Steagall, major investment banks such as Drexel Burnham and Salomon Brothers failed without creating serious contagion in the broader economy. But in the post-Glass-Steagall world of the 2008 crisis, the failure of investment banks like Bear Stearns and Lehman threatened the entire economy."

That's right on the money!

Unless, of course, you don't get the connection.

Then you' might say something like, "It's easy to say that if the investment banks are torn away from commercial banking and deposit gathering that the government can simply 'let them all fail' during a time of crisis. But if there is a financial meltdown like we saw in 2008, and one or two investment banks go down, with all of their counterparties, including commercial banks, suffering as a result, it's a fair bet that the government will be back in the bailout business."

Yeah, that's what you'd say if you just don't get it. And that's what Philip van Doorn at TheStreet.com said this morning.

Seriously Phil?

Here's what you don't get.

You used the word "counterparties," Phil. There's the connection. You see, Bear and Lehman threatened the entire system, even though they weren't FDIC-insured depository institutions precisely because their counterparties were FDIC-insured depository institutions. Do you get it now? All the TBTF FDIC-backstopped (that means taxpayers are the drain-plugging tools) banks were doing exactly what Bear and Lehman were doing. Tthat's how they got to be counterparties. If there was separation, they wouldn't be counterparties to troubled speculators because they would jacked-up speculators. I almost want to say... you cementhead!

Or, if you're a shill for crony capitalism on steroids, you might say something like, "Setting the Record Straight: Glass-Steagall Would Not Have Prevented 2008 Crisis."

Yep, that came out of an email yesterday from Hamilton Place Strategies, a crony club that advocates on behalf of banks.

Hey cementheads, get your heads out of your cement mixer. See the above note to Phil.

The only problem with trying to make banking "21st-century safe" is that we live in the new old age of robber barons, and they are the bankers and politicians they've bought.

So, the chance of this bill going anywhere lies precisely between slim and NONE.

Unless...

Shah

P.S. Less than 24 hours ago, I released my biggest, boldest prediction ever. Check it out here.

About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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