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This past Wednesday, in a closed-door meeting between the director of President Trump's National Economic Council and the Senate Banking Committee, the NEC's Gary Cohn and Sen. Elizabeth Warren apparently cozied up on the idea of separating commercial banking from investment banking.
Talk about strange bedfellows.
Gary Cohn, immediately prior to joining the Trump administration, was president and COO of Goldman Sachs, one of the most powerful and profitable investment banks in history. He was, essentially, a general in the mega-bank oligarchy that many Americans believe directs the U.S. government.
Elizabeth Warren, on the other hand, was a Harvard Law professor who served as chair of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP), assistant to the president, special advisor to the secretary of the Treasury for the Consumer Financial Protection Bureau under President Barack Obama, and was elected senator of Massachusetts in 2012. She has arguably been the most vocal Big Bank basher in the past decade.
These polar opposites joining forces to dismantle the engine room of crony capitalism seems impossible.
So what's really going on here?
Why We Ditched Glass-Steagall in the First Place
Cats and dogs didn't always sleep together.
Deposit-taking institutions, about to be backed by a federal insurance plan in the form of the FDIC (Federal Deposit Insurance Corporation), couldn't underwrite securities or trade them, putting depositors' money at risk.
This was while investment banks, which would generally take the form partnerships, were free to gamble with their partners' and investors' money.
Eventually, after years of whittling away Glass-Steagall safeguards, the core of the 1933 act (the separation of commercial and investment banks) was wiped out in the Financial Services Modernization Act of 1999… This was also known as the Gramm-Leach-Bliley Act.
I've written extensively about Gramm-Leach-Bliley, how it came to pass, and what it created. But the short version is that in April 1998, Travelers Group Inc. and Citicorp agreed to a $70 billion merger that created Citigroup Inc., and at the time it was the biggest financial services company in the world.
It didn't matter that the merger was illegal under Glass-Steagall, since Travelers owned investment banking and brokerage businesses, in the form of Salomon Smith Barney. Citicorp was the holding company of Citibank, an international commercial bank and the largest issuer of credit cards in the world.
The players had their crony capitalist government and shadow-government officials, including then-Secretary of the Treasury Robert Rubin (the former Goldman Sachs CEO), Deputy Treasury Secretary Larry Summers, Chairman of the Federal Reserve Alan Greenspan, and their coterie of paid-off legislators in Congress working on repealing the last vestiges of Glass-Steagall a year later.
Of course, the whole story is fascinating, especially when history reveals how much Robert Ru…
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. 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.