Financial Columns Show Dominance of Glass-Steagall Principle, While Trying to 'Modernize' It
June 4, 2012 • 9:04AM

Two major Sunday media financial columns on June 3 showed the increasing "breakout" dominance of the Glass-Steagall principle, even while trying to offer unnecessary "modernizations" of it, instead of joining the urgent battle to ram HR 1489 through immediately.

Noted financial columnist Barry Ritholz, in his Washington Post weekly column, "imagines" a near-future FDIC chairman — namely, Thomas Hoenig, now FDIC vice-chair — using FDIC rule changes to execute what clearly sounds like the "Glass-Steagall principle" defined by Lyndon LaRouche. "Chairman Hoenig" supposedly sends out a directive in 2015 (!) after widespread bank collapses with derivatives books dumped on the FDIC to "insure":

"1. Effective immediately, we have increased the FDIC deposit insurance for any U.S. bank that engages in ANY trading of derivatives or underwriting securities or other investment banking activities by threefold.... 2. We are LOWERING the maximum insured deposit liability to $100,000 per account for derivative trading firms. Effective in 180 days, the insured maximum insured deposit liability will drop to $50,000 per account. 3. Effective one year from today, on May 23, 2016, we will no longer offer deposit insurance for any firm that engages in derivative trading or securities underwriting or that engages in investment banking....

"It is not our position to tell you what sort of non-depository banking activities you may engage in. Those are business choices you and your firm are free to make. However, it is our position not to engage in foolish insurance underwriting. We have elected to be more conservative in our risk management as well as the underwriting assumptions we make. Therefore, we cannot guarantee the kinds of risks that your firms have been undertaking"; etc.

The Los Angeles Times, meanwhile, ran a column promoting the "modernized Glass-Steagall" proposal of Harvard Law School professor Morgan Ricks, a former U.S. Treasury official. Ricks' scheme does not really deserve even the "modernized Glass- Steagall" designation, as it allows modified derivatives-dealing securities and money-market firms to get government guarantees like commercial banks, although for higher fees and capital requirements, etc.

What indicates the motivation of the column is it's opening words: "'Bring back Glass-Steagall!' That's the cry you hear..."