A Taste of the Glass-Steagall Lash for Lehman

A reformed Wall Streeter on unreformed Washington.

by Nomi Prins

Now that Lehman Brothers, formerly the fourth largest investment bank in the United States, is first largest in American bankruptcies, it's time to again ask: When will Washington get it? It should never have been the Fed's responsibility, or the government's, to back investment bank speculation. Instilling stability in the financial system should have been goal enough. Unfortunately, neither the Federal Reserve, nor the government, nor the presidential candidates (nor, not that it matters, the president) know how to meet that goal, and piecemeal fixes won't do the trick. Only a bout of sweeping and decisive regulation could work.

There's precedent: The last time the banking system stood at the brink of implosion was in 1932, three years after the 1929 stock market crash. Franklin Delano Roosevelt zoomed past Herbert Hoover into the White House, and FDR stood up to the unrestrained power of Wall Street and contained it. The resultant New Deal included a stoplight at the heavy intersection of financial capital and unregulated greed, called the Glass-Steagall Act of 1933.