The new worldwide momentum for Glass-Stegall, in light of JPM Chase's escalating losses ($5 billion mooted on page 1 of the Wall Street Journal today), coupled with the looming bankruptcies of Greece and Spain, and the demise of the EU, has prompted some borderline insane "pushback" on Massachusetts Democratic Senate candidate Elizabeth Warren's recent decision to champion Glass-Steagall.
In Friday's "Morning Money," the feature of Politico's leading columnist, Ben White, he reports:
"Lot of push-back to the Elizabeth Warren interview in yesterday's Morning Money ... One top policy expert and former Federal Reserve Official, who requested anonymity due to ongoing dealings with regulators: 'Warren made an assertion that has been repeated so often in recent years that it risks becoming conventional thinking — and yet is completely and dangerously wrong. Ms. Warren called for the return of Glass-Steagall, stating that 'banking should be boring. Risk-taking should be separated from ordinary consumer banking' ... The problem with Ms. Warren's reasoning is that it bears no relation to financial reality. The inconvenient truth is that 'plain vanilla' lending is far and away the riskiest activity any financial institution can engage in. Virtually every financial crisis in history — including the most recent one — was caused principally by lending-related losses.
"The value of mortgage-backed securities plummeted in 2008 not because those securities were traded, but because too many of the mortgages ... backing those securities were poorly underwritten... The notion that we can legislate or regulate risk out of banks is absurd. Banks are in the risk-taking business. Their job in the economy is to take risks. That means that even well-managed, well-regulated banks staffed by very smart people occasionally make mistakes and sustain losses... The proper response ... is to require adequate capital, impose vigilant supervision, and allow banks that make big mistakes to fail."
Lyndon LaRouche characterized this as a "totally absurd statement."