The Real News Network has the interview The Government is Finally Arresting Wall Street Bankers…For Losing Wall Street’s Money with Bill Black.
DESVARIEUX: So, Bill, will you please just summarize for us what is the story behind this “London Whale” scandal?
BLACK: Sure. This is actually a story of Glass-Steagall, which was the legislation adopted after the Great Depression to prevent conflicts of interest from owning the same investment banking company and a commercial banking company. And we got rid of Glass-Steagall, which had been a brilliant success, in the next to last year of the Clinton administration. And then, of course, we had a disaster, and we passed legislation that’s called the Volcker bill that unfortunately doesn’t simply repeal the repeal of Glass-Steagall, but it’s designed to prevent this kind of speculation in derivatives by commercial banks.
Now, these are not Wall Street traders, by the way. These are City of London traders. And that’s happening for a reason, because the City of London won the competition in laxity. And so, much of the sleaziest activity in the largest commercial banks in the world moved to the City of London, including the so-called “London Whale”, the huge trader for JPMorgan. But that’s also where the LIBOR scandal has been, the HSBC money laundering scandals, etc., etc., etc. So there’s something very rotten in the heart of the financial industry in the City of London.
I have quoted this specific part of the interview in the hopes that you will remember this every time you hear the defenders of Larry Summers say that repeal of the Glass-Steagall act had nothing to do with the crash of the big banks.
Larry Summers was a key part of the Clinton administration that supported the repeal.
The people who now carefully calculate that the repeal could not have caused the magnitude of the collapse are also the ones that predicted that the collapse of the mortgage market would not have a significant impact on the economy. You have to ask yourself, how could their calculations have been so far off the mark? Should we believe their calculations this time that Larry Summers was great for the economy?