Ex-Goldman Trump Advisor Drops Glass-Steagall Bombshell

According to “people with direct knowledge of the matter,” cited by Bloomberg, White House economic adviser and one of the ex-Goldman Sachs executives in the Administration, Gary Cohn, dropped a bombshell at a meeting on Capitol Hill yesterday.

The meeting was arranged by Senate Banking Committee Chairman Mike Crapo of Idaho. Lawmakers and their staffs from both parties participated in the discussion that ranged from tax reform to financial regulation.

Cohn said he generally is in favor of splitting commercial banks from everything else, in a return of sorts to the days of the Glass-Steagall Act. Bloomberg:

Cohn’s remarks were prompted by a question from Senator Elizabeth Warren, one of the finance industry’s most relentless critics, said the people who asked not to be named because Cohn’s meeting with Senate Banking Committee members was private.

The Massachusetts Democrat asked Cohn about his thoughts on Glass-Steagall. After Cohn answered, Senator Robert Corker, a Tennessee Republican, pressed the White House official to clarify his views.

The remarks surprised some senators and congressional aides who attended the Wednesday meeting, as they didn’t expect a former top Wall Street executive to speak favorably of proposals that would force banks to dramatically rethink how they do business.

After the Glass-Steagall Act was repealed in 1999, it took only eight years of banking-free-for-all, huge mergers, and all kinds of risk-taking for these banks to grow from regional banks to global government-backed hedge funds and collapse under their own recklessness. The subsequent bailouts from the Fed of the banking system and of the biggest owners of financial and other assets have ruined the functioning of the US economy.

A new version of Glass-Steagall would likely separate in some manner commercial banking – taking deposits and making loans – from investment banking and hedge fund activities. It would remove much of the risk from today’s government-backed banks, such as derivatives and other instruments that were heavily involved in the Financial Crisis. Without these hedge-fund and investment-banking activities, even large banks would be much smaller, much less interconnected, and could be allowed to fail without bailouts and without risking the entire global financial system.