MCCULLOUGH: Banking industry needs separation, not regulation

Nate McCullough

Nate McCullough

Four years since the economy was pulled back from the precipice, banks continue to operate like private gambling clubs.

The first subpoenas have already been issued in the Facebook IPO debacle. Some officials suspect that analysts for the $100 billion public offering downgraded their outlook for Facebook's stock prior to its going on sale. How many people this information was shared with -- if it should have been shared with anyone -- is at question. Some of the underwriters, in turn, are suing Facebook, I guess for not making as many billions as they had expected.

Meanwhile, JPMorgan Chase is being investigated for losing $2 billion in another risky derivatives venture. This is the same bank that paid $722 million to settle allegations its risky credit derivative business put Jefferson County, Ala., into bankruptcy (aided by, among other people, the Birmingham mayor) and was fined in 2010 for failing to keep client and company money separate.

All banks, in fact, enjoy gambling with your money, whether it's your deposits or your tax money. And it's easier than ever to do.

It wasn't always that way. Laws passed after the Great Depression (most notably the Glass-Steagall Act) were meant to stop banks from speculating on risky securities investments when they didn't have the actual capital on hand to back it. Over the decades lobbyists, sympathetic regulators and Congress whittled away at the law until finally it was repealed during the Clinton administration.

What effect the repeal had on the 2008 financial crisis is a matter of debate. One side says it was a root cause while the other side says Glass-Steagall was already a relic when it was repealed.

The Glass-Steagall question notwithstanding, what does seem apparent is that banks are now hacking away at the government's latest attempt to regulate the murky world of derivatives, credit default swaps and too big to fail.

Rolling Stone recently ran an eye-opening story on Wall Street's attempts to skirt government regulation by lobbying, delaying, suing and then suing some more. Despite the explanatory nature of the piece, its own author admits that many people won't read it or won't care simply because the whole mess is so complicated and dull.

Enter Shepard Smith of Fox News. (Rolling Stone and Fox News -- I'm covering all my bases here.)

In a discussion this week of the banking issues, Smith boiled it down about as simply as you can do it: Investment banks and commercial banks used to have to be separate entities. Eliminating that separation has made it incredibly easy for banks to gamble with your money, no matter what sort of regulations Congress writes, and then turn to the taxpayers for a bailout when the gamble fails. So why not just bust them up? Make them separate again, and eliminate the problem.

The problem, of course, is that the very people who'd be capable of busting them up are the same ones who depend on banks to fund their super PACs for re-election. Who has the real power here?

Think about that question the next time you deposit a check, or cast your vote.

Email Nate McCullough at nate.mccullough@gwinnettdailypost.com. His column appears on Fridays. For archived columns, go to www.gwinnettdailypost.com/natemccullough.