A recent piece in The New York Times entitled “Why Democrats Need Wall Street” offers what can, at best, be described as a misguided view on Wall Street. At worst, it is little more than disguised Wall Street propaganda.
First, it repeats Wall Street’s false talking points that Democrats are “demonizing banks and Wall Street.” That’s simply not true and ignores the facts that there are about 6,000 banks in the US and only a tiny percentage are on Wall Street. The vast majority of banks in the US are community banks serving the needs of individuals and businesses of all sizes. Because those banks lend to and support the real economy, jobs and growth, they enjoy wide bipartisan support in and outside of Washington, DC.
One of Wall Street’s favorite tactics is to try to make people think that they are banks just like Main Street community banks. That is simply false. The gigantic too-big-to-fail financial institutions on Wall Street aren’t really banks at all and banking — as traditionally understood — is not really what they do: they are trading and investment financial giants that pose a unique threat to the well-being of Americans and the stability of the financial system as was proved in 2008. This has been as pointed out by many, including for example John Kay in his book “Other People’s Money” (discussing how less than 10% of what Goldman Sachs does relates to the real economy).
Ironically proving a point the author made that “memories in politics are short,” the piece also ignores the fact that candidate Donald Trump successfully ran a rabid anti-Wall Street campaign, which helped propel him into the White House. As we’ve pointed out, Trump ran as the most anti-Wall Street candidate since FDR. This simple fact alone betrays most of the points made in the piece, including the laughable idea that voters don’t have a problem with Trump’s Wall Street ties.
Quite the opposite. After all, it was candidate Trump who often blasted the industry directly, claiming, “I know Wall Street. I know the people on Wall Street. … I’m not going to let Wall Street get away with murder. Wall Street has caused tremendous problems for us.” Let’s not forget his dark, 2-minute-long closing commercial just a year ago that focused on Goldman Sachs with a picture of its CEO Lloyd Blankfein as posing one of the biggest dangers to the United States.
But perhaps the most egregious point in the piece focuses on holding up the Financial Services Modernization Act of 1999 (better known as Gramm-Leach-Bliley) as a shining example of the positive pro-Wall Street agenda supported by Democrats in the 1990s. That infamous legislation repealed the Glass-Steagall Act, which prohibited the same bank from engaging in both relatively low-risk traditional commercial banking (using FDIC-insured and Fed-backed savings accounts to make mortgage and business loans) and higher-risk trading, insurance, and investment banking operations.
Repealing that law unleashed an acquisition spree that ultimately reached its peak when what had been almost 40 financial institutions resulted in just four too-big-to-fail financial conglomerates. Three of those spanned the globe with trillions of dollars in assets and derivatives, hundreds of thousands of employees, operating through thousands of subsidiaries in more than 50 countries. These mergers and acquisitions created gigantic, sprawling, interconnected, global financial institutions that threatened taxpayers and risked massive bailouts if they failed. That is exactly what happened in 2008.
Having nothing to do with 99% of the banks in the US, Wall Street’s too-big-to-fail giants before the 2008 crash resulted from massive deregulation and engaged in reckless, unbridled risk-taking. While it enriched a few thousand financiers, it ruined the lives of tens of millions of Americans who lost their jobs, homes, savings and so much more. That’s why candidate Trump ran against Wall Street and painted Hillary Clinton as Wall Street’s best friend. President Trump’s historic flip-flop embrace of Wall Street is a slap in the face to those voters and all those Americans who suffered as a result of Wall Street’s recklessness.
Democrats and all Americans need a Wall Street that supports the real economy, jobs and growth, not the pre-crash Wall Street gambling enabled by repealing Gramm-Leach-Bliley and deregulation more broadly. The 2010 Dodd-Frank law re-regulated Wall Street to reduce its most dangerous and high-risk activities while requiring it to refocus on Main Street lending. Wall Street’s biggest banks results have consistently show that revenues, profitability and lending is increasing while socially useless if not dangerous trading and investment activities are decreasing. That’s the Wall Street we all need.