John Cheves's Odd Reporting On The Repeal Of Glass-Steagall

The power is back on, but still there is no internet connection. So this post, on a borrowed laptop, will be brief.

John Cheves's article in today's Lexington Herald-Leader brought me out of hibernation because the premise of his piece is so outrageous. Cheves argues that the Financial Services Modernization Act, enacted in 1999 to repeal the Glass-Steagall Act of 1933, is the cause of Wall Street's woes and that Kentucky's congressional delegation, led by Senator Mitch McConnell, is in part to blame because they voted for the legislation.

Cheves's reasoning is strange, to say the least. Rather than contribute to the economic crisis, the repeal of Glass-Steagall in fact has helped prevent problems from getting worse. That is because, as Cheves acknowledges, "the separation and individual regulation of commercial and investment banks" was eliminated when Glass-Steagall was repealed. In other words, investment banks now may merge with commercial banks. That has allowed, for example, Merrill Lynch, an investment bank, to be acquired by Bank of America, a commercial bank, averting a Chapter 11 or government bailout.

It is also noteworthy that the commercial banks with investment banking arms created after Glass-Steagall was repealed have fared relatively better in the recent economic storm than those entities such as Merrill Lynch that remained strictly investment banking concerns.

Cheves once again appears to have allowed his partisan fervor to get in the way of a fair and accurate reporting of facts.