Reno Hayek Symposium

Perhaps, we will see. But a late item in the January 20th WSJ indicates that Obama is finally starting to listen to experienced voices in the White House, specifically that of Paul Volcker, the former Fed Chairman who has been advocating the separation of commercial banking from investment banking.

As covered in my January 14th post, commercial banks are connected with various deposit guarantees to the government but correspondingly traditionally regulated by bank examiners. Investment banks are advisors, underwriters and traders all involving unregulated risk in the traditional sense. Since the Glass-Steagall repeal in 1999 the two systems have merged big time and we taxpayers have taken it in the shorts as a result. The simple solution is to re-initiate Glass-Steagall and break ‘em up, as was done with ATT and others, successfully!

If today’s WSJ post is correct, Obama doesn’t go far enough but seeks to capture the “spirit of Glass-Steagall.” This half step is certainly in the right direction but still leaves the “too big to fail” nightmare intact and the taxpayers footing the bill.

If we are merely willing to structure regulation so that failure can occur, we will return discipline to the financial system. Because the failure will most likely occur on the risky investment banking side where the worldwide banking system will not be at risk. We will avoid moral hazard. And we will save our children and grandchildren from the debilitating deficit bailouts we have recently suffered.

Let’s hope Obama is more willing to forsake his Wall Street money backers than he has been his union employers. And let’s hope continues to listen to Volcker and separates commercial banking from investment banking. We should support him in this effort.

Tom Motherway