Donald, listen, whatever you’ve done so far, whatever you’ve messed up, there’s one thing you could do that would make up for a lot. It would be huge! Terrific! It could change our world for the better in a big-league way! It could save us all from economic disaster! And it isn’t even hard to grasp or complicated to do. It’s simple, in fact. Reinstitute the Glass-Steagall Act. Let me explain.
In the world of romance, if you break up with someone, it’s pretty simple (emotional complications aside). You’re just not together anymore. In the world of financial regulation, it used to be as simple as that too. It was like installing a traffic light at a dangerous intersection to avoid deaths. In 1933, when the Glass-Steagall Act was passed, it helped break up the biggest banks of the day and for good reason: They had had a major hand in triggering the most disastrous economic depression our country ever experienced.
Certain divisions of those banks were no longer allowed to coexist with others. The law split the parts of banks that placed bets by creating and trading certain risky securities and those that took deposits and provided loans. In other words, it ensured that the investment bank and the commercial bank would no longer cohabit. Put another way, it separated bankers with a heinous gambling habit from those who only wanted a secure nest egg. It was simplicity itself.
After 1933, the gamblers and savers went their separate ways, which proved a boon for the economy and the financial system for nearly seven decades. Then legislators, lobbyists, bankers, and regulators started to chisel away at the wall separating those two kinds of banks. By November 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act that repealed the Glass-Steagall Act totally. The abusive marriages of gamblers and savers could once again be consummated.
And who doesn’t remember the result: the financial crisis of 2007–08 that led to taxpayer-funded bailouts, subsidies, loans, and sweetheart fraud-settlement deals. Just as the crash of 1929 had been catalyzed by the manufacturing of shady “trusts” stuffed with shady securities, this crisis was enabled by the big banks that engineered complex assets stuffed with subprime mortgages and other loans that were sold around the world.
Under President Obama, the 2010 Dodd-Frank Act was signed into law. The act sought to limit the ability of big banks to trade the riskiest types of securities. Through inclusion of something called the “Volcker Rule,” Dodd-Frank prohibited the trading of securities (even if with many loopholes). What it didn’t do was actually break up the big banks again. That meant another 1933 still awaited its moment.
Then along came the bizarre 2016 presidential election campaign during which, strangely enough, Democrats and Republicans found one issue on which they had some common ground: the banking system. Key figures in both parties agreed that it was time to stop the investment bank and the commercial bank from commingling. Bernie Sanders ran on a campaign to break up the banks—and so did Donald Trump. At at an October campaign rally in Charlotte, North Carolina, Trump even stated, “It’s time for a 21st-century Glass-Steagall.”