By Pam Martens: November 13, 2013

Four seminal events occurred yesterday which carry dramatic overtones for next year’s midterm elections and the Presidential race in 2016.

U.S. Senator Elizabeth Warren delivered a speech warning her Congressional colleagues in strident tones that Wall Street is now more dangerous than it was five years ago when it crashed. Warren, again, called for the restoration of the Glass-Steagall Act to prevent another financial calamity.

Gallup released a poll showing the approval rating of Congress had fallen to nine percent, the lowest reading in the 39 years the firm has been asking the question.

A Quinnipiac University poll reported President Obama’s popularity has fallen to the lowest point of his presidency, with a majority of Americans, 54 percent, now disapproving of his performance.

And, finally, Americans for Financial Reform together with the Roosevelt Institute issued a 126-page report in conjunction with the speech by Senator Warren, outlining their own dire predictions for financial stability under the current Wall Street structure. Eleven separate scholars contributed to the study, including Jennifer S. Taub, an Associate Professor at Vermont Law School. One might anticipate what Taub had to say from the title of her upcoming book, Other People’s Houses: How Decades of Bailouts, Captive Regulators, and Toxic Bankers Made Home Mortgages a Thrilling Business – available from Yale Press in 2014.

Taub’s section of the report is a must-read as it dissects, point by point, the nuttiness of former Federal Reserve Chairman Alan Greenspan’s premise that sophisticated investors and shareholders would protect the system out of self-interest with nominal regulation needed. Her chapter on this topic is titled, “There is No There There.”

Like Warren, Taub points out how dangerous the system remains despite the Dodd-Frank legislative reform, writing: “…many of the conditions that helped cause the 2008 crisis persist. First, the top six U.S. banks are larger than they were before the crisis. Second, though a proposal to restrict leverage has been suggested, banks (and their holding companies) are legally permitted to borrow $97 for every $100 in assets they own, and private pools of capital, including hedge funds, face no leverage restrictions at all. Third, trillions of dollars are borrowed through the short-term, often overnight, repo market. Fourth, credit derivatives remain insufficiently regulated.”

Senator Warren said to the audience: “Who would have thought five years ago, after we witnessed firsthand the dangers of an overly concentrated financial system, that the Too Big to Fail problem would only have gotten worse? There are many who say, ‘Sure, Too Big to Fail isn’t over yet, but Congress should wait to act further because the agencies still have to issue a bunch of Dodd-Frank’s required rules.’ True, there are rules left to be written, but that’s because the agencies have missed more than 60 percent of Dodd-Frank’s rulemaking deadlines. I don’t understand the logic. Since when does Congress set deadlines, watch regulators miss most of them, and then take that failure as a reason not to act? I thought that if the regulators failed, it was time for Congress to step in.  That’s what oversight means.  And that’s certainly a principle that would have served our country well prior to the crisis.”

Warren, together with Senators John McCain, Maria Cantwell and Angus King have introduced the “21^st Century Glass-Steagall Act.” Warren explained why enacting that legislation is critically important to the country:

“By separating traditional depository banks from riskier financial institutions,” said Warren, “the 1933 version of Glass-Steagall laid the groundwork for half a century of financial stability.  During that time, we built a robust and thriving middle class. But throughout the 1980’s and 1990’s, Congress and regulators chipped away at Glass-Steagall’s protections, encouraging growth of the megabanks and a sharp increase in systemic risk.  They finally finished the task in 1999 with the passage of the Gramm-Leach-Bliley Act, which eliminated Glass-Steagall’s protections altogether.” Nine years later, the financial system crashed, leaving the economy in the worst condition since the Great Depression.

Warren has good company in her urgent calls for the restoration of the Glass-Steagall Act. In June, Thomas Hoenig, former President of the Federal Reserve Bank of Kansas City and now Vice Chair of the FDIC, told the House Financial Services Committee that the biggest banks are “woefully undercapitalized” and that we have a “very vulnerable financial system.” Hoenig was also a member of the Federal Reserve System’s Federal Open Market Committee from 1991 to 2011. Hoenig is convinced that the Dodd-Frank legislation is inadequate to rein in the abuses of Wall Street and is strongly advocating the restoration of the Glass-Steagall Act.

At the same hearing, Richard Fisher, President of the Federal Reserve Bank of Dallas, said “I don’t think we have prevented taxpayer bailouts by Dodd-Frank” and added that the legislation “enmeshes us in hyper bureaucracy.”

The repeal of the Glass-Steagall Act and the epic human suffering it has unfolded is a matter for which I have had a front-row seat for the past 15 years. On June 26, 1998, I testified before the Federal Reserve’s public hearing on the matter. Below is an excerpt:

“It is amazing how soon we forget.  It was just 60 years ago that 4,835 of America’s banks went broke and closed their doors, leaving shareholders and depositors destitute.  The underlying reason that this happened was the lack of moral courage by our regulators and elected representatives to just say no to powerful money interests.  Instead of just saying no, Washington handed the banks the equivalent of an ATM card to the Feds discount window to speculate in stocks.

“At a time when Japan, the second largest industrialized nation, is reliving the 1930s in America, complete with banking insolvency, it is amazing and preposterous that we should be discussing rolling back Glass-Steagall.

“We also want to remember that the political dynamics that created the backdrop for the banking meltdown in the ‘30s grew from a corrupt cozy culture between Wall Street and Washington.  U.S. Supreme Court Justice William O. Douglas, (who knew a thing or two about the matter, having just served as chairman of the young, new SEC, before he went to the Supreme Court) called it what it was, chicanery and corruption.

“Frank Vanderlip, coincidentally, an actual former president of National City Bank, wrote in the Saturday Evening Post at the time that lack of separation of banking and securities contributed to the stock market losing 90 per cent – I’d like to repeat that, 90 per cent – of its value from 1929 to 1933. The public was so sickened by the hubris and corruption that an entire generation stayed away from the stock market.  It was not until 1954, 25 years later, that Wall Street once again reached the level it had set in 1929.

“There is a compelling body of evidence that suggests a corrupt cozy culture has once again enveloped the brains of Washington.  We can hardly look to the safe keepers of the public trust when they are falling over themselves to reap campaign windfalls from Wall Street.”

Tragically, today, we still can’t look to the safe keepers of the public trust. They are still falling over themselves to reap campaign windfalls from Wall Street. Clearly, campaign finance reform must became as much of a priority as the restoration of the Glass-Steagall Act.