Summers: Don't blame bank law for Wall St blow-up
In Philadelphia this week, Obama adviser Larry Summers defended the bank deregulation that happened on his watch back in the Clinton years
Some bank critics want a return to the Glass-Steagall Act, the Depression-era law that forced banks to choose between commercial banking, or investment banking and trading, but not both. The idea is, this helps avoid conflicts of interest.
The ban was dismantled under President Clinton and his Treasury secretary (now Obama adviser) Lawrence Summers at the end of the 1990s - as a favor to newly-formed, ill-fated Citigroup and its peers, critics say.
Summers disagrees. "One should not ascribe excessive significance to the date when Glass-Steagall was repealed," he told a crowd of Wharton School real estate students at the Rittenhouse Hotel on Tuesday night.
Lehman Bros. Holdings Inc. and Bear Stearns Cos. Inc. failed, despite being purely investment banks, Summers noted. Washington Mutual Inc. and Wachovia Corp. also failed, and these were commercial banks with little or no investment trading.
On the other hand Bank of America, a commercial lender, saved ailing investment banking giant Merrill Lynch & Co. Inc. And Goldman Sachs and Morgan Stanley were stabilized by diversifying into commercial banking, Summers noted.
Summers still seems to believe that bank size and complexity can be a solution, not a threat. That's in contrast with rival Obama adviser Paul Volcker, the ex-Federal Reserve chief, and an advocate smaller, simpler financial giants. (From my print column in today's Inquirer here.)